By Lucia Mutikani
WASHINGTON, Oct 16 (Reuters) – US import prices increased more than expected in September, boosted by higher costs for energy products and a range of other goods, further evidence of rising inflation pressures as the Middle East conflict persists.
The report from the Labor Department on Friday followed data this week showing strong increases in consumer and producer prices last month, which left economists convinced that inflation was broadening beyond the energy sector.
The drawn-out US-Israeli war with Iran has snarled supply chains, and is keeping oil prices elevated. Economists have attributed rising inflation to President Donald Trump’s policies, including tariffs on imports and the Middle East conflict. A Reuters/Ipsos poll also showed about 78% of Americans blamed Trump’s policies for the rising cost of living.
“Americans face an inflation threat literally on every front and everywhere they turn they have to reach in their pocketbooks and pay a little bit more for the same goods that were cheaper just a few months ago,” said Christopher Rupkey, chief economist at FWDBONDS. “There was no import goods inflation before Trump 2.0 economic policies started to roll out in January 2025, but this year it is everywhere.”
Import prices jumped 1.1% last month after rebounding by a downwardly revised 0.5% in August, the Labor Department’s Bureau of Labor Statistics said. Economists polled by Reuters had forecast import prices, which exclude tariffs, increasing 0.8% after a previously reported 0.7% advance in August. In the 12 months through September, import prices rose 8.1%, the largest gain since July 2022, after increasing 6.7% in August.
Despite inflation heating up in September, financial markets still expected the Federal Reserve to skip raising interest rates later this month and tighten monetary policy in December.
The US central bank in September raised its overnight benchmark interest rate by 25 basis points to the 3.75%-4.00% range. Fed Chairman Kevin Warsh, speaking in Bangkok, Thailand, on Friday gave no preview about whether he feels more interest-rate hikes will be needed, or when, in keeping with his style since taking the reins as central bank chief in May.
Stocks on Wall Street were mixed. The dollar fell against a basket of currencies. US Treasury yields fell.
Imported fuel prices rebounded 4.8% last month after falling 0.2% in August. Food prices were unchanged after dropping 0.6% in August. Excluding food and fuels, import prices advanced 0.7%, matching the prior month’s increase. The so-called core import prices rose 6.2% in the 12 months through September.
Capital goods prices increased 0.9% after rising by the same margin in August, boosted by prices for computers, peripherals and semiconductors amid an AI investment boom.
There was also a rise in the cost of imported industrial and service machinery, which more than offset a decline in the prices of scientific and medical machinery.
ACCELERATION IN INFLATION ANTICIPATED
Prices for imported consumer goods, excluding automotives, increased 0.4%, driven by a 0.7% surge in the cost of long-lasting manufactured goods. The cost of imported automotive vehicles, parts and engines increased 0.3%.
Prices of imports from China increased 0.7%, the most since December 2021. Prices gained 3.1% in the 12 months through September. There were also increases in the prices of imports from Japan, the European Union, Mexico and Canada.
The report also showed a 12.6% surge in import air passenger fares last month after declining in July and August.
Economists said the international airfares component that goes into the calculation of the Personal Consumption Expenditures price indexes, the inflation measures tracked by the Federal Reserve for its 2% target, was unchanged after they adjusted the data for seasonal fluctuations.
Economists’ estimates for the increase in September’s core PCE price index were little changed in the 0.31% to 0.36% range, which could round up to 0.4%. That would translate to a year-over-year rise of 3.1%. Core PCE inflation gained 0.2% in August and advanced 3.0% on a year-over-year basis.
“We’re looking for inflation to accelerate in the near term but not plateau at a higher level,” said Oren Klachkin, financial markets economist at Nationwide. “That said, the risk is inflation remains higher for longer than we expect and is more difficult for the Fed to vanquish.”
Though the AI investment spree is contributing to fueling inflation, it is also underpinning manufacturing. A separate report from the Fed showed factory production rebounded 0.3% in September, also supported by businesses replenishing inventories to meet robust domestic demand. Output fell 0.2% in August. It advanced 1.1% on a year-over-year basis in September.
But factory production lost significant momentum in the third quarter, growing at a 0.7% annualized rate after accelerating at a 5.6% pace in the April-June quarter.
Manufacturing accounts for about 9.4% of the economy. Output of semiconductors and related electronic components surged 28.4% last quarter, which some economists shrugged off. Motor vehicle and parts production fell 3.0% in September and contracted at a 3.4% rate last quarter.
“While strong AI-demand has boosted business investment, much of this investment is imported, implying domestic production has not been as strong,” said Veronica Clark, an economist at Citigroup.
Outside AI-supporting industries, downside risks to production are mounting from elevated energy prices, a trade war with Canada, rising borrowing costs and fading stimulus from tax incentives. Record high diesel prices could soon raise the cost of goods, including at the supermarket, weighing on demand.
Capacity utilization for the manufacturing sector edged up to 75.9% from 75.8% in August. It is 2.3 percentage points below its long-run average.
“This means producers may be inclined to absorb some of the increase in energy and other input costs, but clearly not all, as suggested by this week’s heated consumer and producer price reports,” said Sal Guatieri, a senior economist at BMO Capital Markets.
(Reporting By Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci)
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