Underlying inflation in the US ran hotter than expected last month, Wednesday’s update from the outfit formerly known as the world’s preeminent macro statistics agency showed.

Core CPI rose 0.335% MoM, the BLS said. That constituted a meaningful overshoot versus what I thought was a rather optimistic consensus, which expected a downshift from August’s monthly pace to 0.2%.

As the figure below shows, September marked the third straight month during which the unrounded core measure picked up. The YoY pace, at 2.6%, was likewise warm.

Headline CPI rose 0.6% MoM, 0.649% unrounded. The 3.7% YoY pace there was also a tenth higher than expected.

Aside from another benign read on grocery prices (which allegedly fell last month from August and rose just 1.8% from September of 2025), there wasn’t a lot to like in Wednesday’s report.

The energy gauge posted its largest increase since the beginning of the war, rising more than 5% MoM. The gas index was up more than 9% (accounting for more than half of the overall, headline inflation increase) and the fuel oil measure more than 15%.

The used vehicles gauge posted its largest MoM gain in nearly a year, apparel prices their largest monthly advance since May, transportation services the briskest monthly pace since March and, insult to accumulated injury, the shelter gauge its quickest increase since April.

The CPI-derived versions of the so-called “supercore” measure the Fed eyes (i.e., core services excluding housing) were warm for a second month. Stripping out the rent and OER measures, core services prices rose 0.42% in September atop a 0.51% increase in August. Core services excluding the shelter gauge posted a 0.34% advance on top of the prior month’s 0.42% gain.

There was no respite in core goods. That gain was 0.25%, double the prior month’s advance and the quickest of Donald Trump’s second term. The category that captures the impact of the AI buildout — “computers and associated equipment” — showed a near 4% MoM advance, the quickest since inflation took off in early 2021.

So, again, there were no silver linings in this week’s marquee US macro release, which served to underscore households’ concerns about prices headed into the midterms. A New York Fed poll last week showed consumers’ near-term inflation expectations were the highest since May of 2023 in September, and the preliminary read on University of Michigan Sentiment for October saw the current conditions gauge hit a new all-time low.

If you’re wondering whether the CPI release puts an October Fed hike back on the table, the answer’s probably “no.” Fedspeak, including Wednesday remarks from Miki Bowman, has uniformly suggested another hike isn’t in the offing, and that December’s gathering is the next “live” meeting.

That said, STIRs moved dramatically in the wake of the CPI release. Prior to the hot core readout, market-implied odds of a move on October 28 weren’t even 25%. Following the report, those chances rose all the way to a coin flip.

The figure above shows you the move at the front-end of the curve. Twos were cheaper by 15bps, resulting in a fairly sharp bear flattener. If the move in twos held, it’d be the largest close-to-close increase of the year.

“Overall, it was a troubling round of inflation data that undermines the argument for a gradual pace of future rate hikes, and revives the prospects for a quarter-point Fed hike in two weeks,” BMO’s Vail Hartman said, adding that the stakes are now higher for Kevin Warsh’s remarks at the IMF meetings in Thailand.

“Forward guidance is by no means guaranteed,” Hartman went on. “[But] the Chair has shown a willingness to provide implicit signals about the future path of policy rates in recent public appearances.”