The Consumer Price Index report for September 2026 came out a few minutes ago, and it shows that fuel prices drove inflation to 3.7% for the month. That is the largest increase in the last five months. The trend is for inflation to drift even higher. This puts pressure on the Fed to increase interest rates to tame the price increases. The trouble is that the unemployment report last month was an anemic 29,000 jobs when expectations were for 80-90,000. Higher interest rates will slow inflation, but they will also throw people out of work. The real issues for the American economy are political rather than economic, so there are limits as to what the Fed can achieve.
The official administration position came in a blog post by Tony Romm writing for the New York Times
Kevin Hassett, the director of the White House National Economic Council, acknowledged on Fox Business that the spike in inflation was “disappointing.”
Mr. Hassett offered a series of explanations for the rise, particularly the widening conflict in the Middle East, which had caused a “negative shock to energy again.”
But he still tried to point out “good news” in the report, including what he described as stable food prices and drops in drug prices.
“A lot of Trump policies are helping to keep inflation down, but the energy shock is really the headline story today,” Mr. Hassett said.
Mr. Hassett is, of course, lying. The Trump policies are causing the inflation rather than keeping it down, but one does not keep a job in this administration by being right. One keeps a job by being loyal. He has spent too much time in finance to be ignorant of the data; quite simply, he knows what he is saying is untrue.
There are three things that are keeping inflation front and center: the war with Iran, the debt and the tariffs. The first two are intractable in the short and medium term. The tariffs could go away immediately, but Mr. Trump would have to admit he was wrong, so that is not possible either.
With regard to the war, it appears that the fighting is on hold for another 3 weeks while the US mid-term campaign plays out. Once it is too late to change voters’ minds, the US will probably start bombing Iran again. What is certain is that the White House will have to decide if it wants to join the Saudis and Yemeni government in their war against the Houthis, who have closed the Red Sea to Saudi shipping. The Iranians, Houthis, Hezbollah and Hamas all have a vote in whether this war ends, and right now, it appears the do not wish to do so.
The American national debt is now at $40 trillion, up from $19 trillion when Mr. Trump entered the White House in 2017. This keeps the yield on US government debt higher than it would be if the debt were lower. Higher yields mean the US pays more to borrow money — it has already reached the point where servicing the debt is the single largest federal expenditure. All commercial and consumer debt rates are based on the 10-year Treasury, so future prices are going to be higher than if the debt were lower. Until and unless the debt is addressed, there will be inflationary pressures.
Finally, the tariffs that the president loves so much are driving prices higher, too. Putting a tariff on anything means the price is higher when all is said and done. There is a very narrow set of circumstances where a tariff makes sense (infant industry for instance), but to employ them across the board as Mr. Trump has done is far from surgically precise.
October is not going to be much better for prices, and even if it were, it is too late to affect the election. One expects the decay to continue as there are no policy changes ahead.