Inflation Accelerates as Energy Costs Work Through the Economy

Matthew Rubin Chief Investment Officer

 

1. Consumer and producer prices both accelerated in September, with gasoline driving the headline gains and core measures firming as well.
2. Retail sales rose more than expected, but gas receipts accounted for most of the increase.
3. The Federal Reserve’s (Fed’s) latest survey of regional business conditions described uneven growth, little change in employment, and price pressures spreading beyond energy.

 

1. Inflation Accelerates on Both Sides of the Economy

The Bureau of Labor Statistics released two inflation reports last week, and both showed price pressures intensified in September. The Consumer Price Index, published October 14^th, increased 0.6% for the month and 3.7% over the previous 12 months, accelerating from the 3.4% annual pace recorded in August.¹ Gasoline prices jumped 9.1%, accounting for more than half of the monthly increase in the overall index.¹

Core prices, which exclude food and energy, increased 0.3% for the month and 2.6% over the year, accelerating from 2.4% in August and suggesting inflationary pressure is not confined to energy categories.¹

Producer prices communicated a similar message. The index for final demand, published October 15^th, advanced 1.3% in September and 6.3% over 12 months, representing the largest annual increase since December 2022.² Final demand energy jumped 10.8%, generating more than 80% of the monthly advance in goods prices, while producer prices excluding foods, energy, and trade services increased 5.0% over the year.²

These readings follow the Fed’s September 16^th decision to raise its benchmark interest rate to a target range of 3.75% to 4.00%.³

2. Retail Sales Beat Forecasts on Higher Gasoline Receipts

Retail sales exceeded expectations in September,⁸ although the headline figure deserves a second look. On October 15^th, the Census Bureau reported that retail and food services sales increased 0.8% for the month to $745 billion, following an upwardly revised 1.3% advance in August, and were 6.3% higher than a year earlier.⁴

Gasoline drove most of the increase. Receipts at gasoline stations rose 6.4%, and excluding those stations, total sales advanced only 0.2%.⁴ Because retail sales figures are not adjusted for inflation, a large share of the September increase reflects higher prices rather than additional purchases.⁴

The narrower control group measure, which excludes automobiles, gasoline, building materials, and food services, edged up 0.1% after surging 1.2% in August.⁴ That measure tracks the consumer spending part of economic growth most closely.

Gains elsewhere were modest, with sales increasing 1.3% at furniture stores, 1.1% at restaurants and bars, and 0.6% at electronics and appliance stores.⁴ Consumer demand appears intact, but energy costs are taking up a growing share of household budgets.

3. Beige Book Shows Uneven Growth and Broadening Price Pressures

The Fed published its latest survey of regional business conditions on October 14^th, covering the period from late August through early October.⁵ Growth was uneven across the country. Two of the 12 Federal Reserve Districts reported moderate expansion, three reported modest growth, four described slight growth, and three saw no significant change.⁵ Manufacturing carried much of the momentum, with broad-based strength in the Dallas District and modest to moderate gains in six others.⁵

Consumer spending was largely flat. Most Districts reported little or no change, and over half noted that higher-income households were doing most of the spending.⁵

Hiring followed a similar pattern. Most Districts described little to no net change in employment, and labor supply was generally adequate, though shortages persisted for specialized and skilled trade workers.⁵ Five Districts said some firms reduced headcount through attrition or delayed hiring after investing in artificial intelligence.⁵

Price pressures represented the clearest theme. Higher oil prices showed up in every District report, with fuel surcharges passing costs along the supply chain.⁵ Firms in several Districts expect further increases as existing contracts expire.⁵

Looking Ahead

1. Housing Starts and Building Permits – Tuesday, October 20^th
2. Initial Jobless Claims – Thursday, October 22^nd
3. S&P Global Flash PMIs – Friday, October 23^rd

Why It Matters

Housing data opens the week. Permits are the better forward signal. Economists generally view permits as the better forward-looking signal, and both readings show how higher borrowing costs are shaping new construction. Jobless claims follow on Thursday, covering the week ending October 17^th. Initial filings have recently run near 199,000, a level consistent with limited layoff activity.⁶ The week closes with flash purchasing managers’ data for October. These surveys give the first broad look at business activity since the September inflation reports. Their price components may show whether higher energy costs continued to move through the economy this month. All three reports land just before the Fed announces its next policy decision on October 28^th.⁷

For the period ending 10/16/26.
*Small-cap stocks are represented by the Russell 2000^® Index. International stocks are represented by the MSCI EAFE. Bonds are represented by the Bloomberg US Aggregate Bond Index. Oil is represented by WTI Oil (West Texas Intermediate Oil), a benchmark for light, sweet crude oil and a primary measure for pricing oil contracts and futures in the U.S.

Sources
¹ U.S. Bureau of Labor Statistics, Consumer Price Index Summary, September 2026, October 14, 2026
² U.S. Bureau of Labor Statistics, Producer Price Indexes News Release, September 2026, October 15, 2026
³ Federal Reserve Board of Governors, FOMC Statement and Summary of Economic Projections, September 16, 2026
⁴ U.S. Census Bureau, Advance Monthly Sales for Retail and Food Services, September 2026, October 15, 2026
⁵ Federal Reserve Board of Governors, Beige Book: Summary of Commentary on Current Economic Conditions, October 14, 2026
⁶ U.S. Department of Labor, Employment and Training Administration, Unemployment Insurance Weekly Claims News Release, October 15, 2026
⁷ Federal Reserve Board of Governors, FOMC Meeting Calendar, 2026
⁸ Reuters, US retail sales beat expectations in September on higher gasoline prices, October 15, 2026

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