Inflation rises to 3.7 percent in September as gasoline jumps 9.1 percent

The September inflation report the markets waited on all morning landed hotter than hoped, and gasoline did most of the damage.

The Bureau of Labor Statistics said on Wednesday that the Consumer Price Index rose 0.6 percent in September and 3.7 percent from a year earlier, as of October 14. The annual figure was up from 3.4 percent in August and a tenth of a point above the 3.6 percent economists polled by Reuters had expected. The gasoline index jumped 9.1 percent in September and accounted for more than half of the overall monthly increase. The broader energy index climbed 5.2 percent, shelter rose 0.4 percent, and food prices were unchanged overall.

The part of the report that argues against a one month energy story is the core reading. Excluding food and energy, prices rose 0.3 percent in September and 2.6 percent over the year, both a tenth of a point above forecasts and up from 2.4 percent in August. Increases were recorded across recreation, used vehicles, education, airline fares and medical care.

Markets moved fast. Bond yields rose, with the ten year Treasury yield reaching 5.329 percent in trading after the release, as of Wednesday, and stock futures and gold fell. Market based odds of a Federal Reserve rate increase at its October 27 and 28 meeting rose sharply during the day, though holding rates steady remained the more likely outcome in those markets. The report is the last full inflation reading before that meeting, and it leaves the central bank weighing an energy driven price surge against evidence that underlying pressure is not fading on its own. This report describes the published figures and market reaction. It is not financial advice. The picture is an illustration of a gas station at dusk, not a photograph.