The inflation rate in the United States rose more than expected during the 12 months ending in September, according to official data, the last to be released before the midterm elections scheduled for next month.
The annual inflation rate reached 3.7 percent, up from 3.4 percent in August.
This increase was driven by the rise in gasoline prices, following the disruption of energy supplies from the Middle East as a result of the war between the United States and Israel on the one hand, and Iran on the other hand.
Pressures resulting from the rising cost of living feature prominently in election campaigns across the United States.
What is inflation?
For example, if the price of a bottle of milk was $1, and then it became $1.10 a year later, this means that its price increased by 10 percent during that year.
The US Bureau of Labor Statistics measures inflation using the Consumer Price Index, which tracks changes in the prices of hundreds of goods and services people use in their daily lives, from fresh food and gasoline to medical services, to determine the overall rate of inflation in the US economy.
The office updates the list of goods and services included in the index, known as the “basket of goods and services,” to keep pace with changes in people’s spending patterns and living habits.
What are the causes of inflation?
There are several factors that may lead to an acceleration in price increases.
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When the demand for a commodity exceeds the available quantities, producers may resort to raising its prices. An example of this is the great demand for “Labobo” dolls in recent years, and the accompanying increase in resale prices.
An increase in individuals' incomes may also lead to a rise in demand for goods and services, which pushes prices up.
Crude oil, which is used to produce gasoline and diesel, is a clear example of this.
Before the outbreak of war between the United States, Israel, and Iran, the price of a barrel of oil was slightly more than $70. But with supplies declining due to the war, prices jumped quickly, with the price of a barrel currently exceeding $100.
What is the current inflation rate?
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The annual inflation rate in the United States reached 3.7 percent in September, above expectations, amid a sharp rise in gasoline prices.
Motor fuel prices have jumped by 34.2 percent over the past twelve months.
In September alone, they rose 9.1 percent, accounting for more than half of the increase in the inflation rate, according to the US Bureau of Labor Statistics.
Energy prices generally rose by 20.4 percent during the year, with prices for heating fuel, energy services, and electricity rising. Home heating fuel alone recorded an increase of 74.2 percent during the same period.
Experts said that the US Federal Reserve, which is responsible for setting interest rates in the country, will closely monitor whether rising energy costs will be reflected in the prices of other goods and services, such as food, which could push inflation higher.
So far, the rise in food prices remains limited, as no increase was recorded during September, while the increase on an annual basis amounted to 2.5 percent.
The core inflation rate, which excludes food and energy prices, was 2.6 percent.
How have Social Security payments been affected?
Shortly after the release of the latest inflation data, the US Social Security Administration announced an increase in the benefits it disburses to beneficiaries by 3.6 percent in 2027, including retirement pensions and survivor and disability benefits.
The administration explained that this increase would mean an increase in the average retirement pension by $75 per month.
The planned increase to keep pace with the rising costs of living will begin to be implemented in January, benefiting about 72 million people.
As for the 7.2 million beneficiaries of the Supplemental Security Income program, they will begin receiving the higher payments as of December 31.
How did tariffs affect inflation?
Since returning to the White House for a second term, US President Donald Trump has imposed tariffs on most of the US trading partners around the world.
Although the Supreme Court ruled in February that most of the additional tariffs he imposed on imports from around the world were illegal, Trump quickly announced new global tariffs of 10 percent to replace them.
Trump justified these tariffs by saying that they would increase US tax revenues, support the manufacturing sector, and encourage consumers to buy American products.
But a study conducted by the Federal Reserve Bank of New York showed that increased tariffs on imports also contributed to higher inflation.
Tariffs, which are taxes that companies pay on the goods they import, increase the costs borne by American companies, unless foreign suppliers lower their prices to bear part of this increase.
But the Federal Reserve Bank of New York found that companies exporting to the United States only reduced their prices in response to the new duties, leaving American companies bearing about 90 percent of their additional costs.
The effect of the duties was not limited to imported goods, but rather extended indirectly to the prices of locally manufactured products, as many American companies depend on parts and materials that they import from abroad.
The bank concluded that, after a year, every one percentage point increase in average tariffs led to consumer prices rising by about 0.25 percent.
Has inflation reached higher levels in recent years?
Although the current inflation rate exceeds the US Federal Reserve's target level of 2 percent, it has previously reached much higher levels.
During the Corona pandemic, supply chain disruptions, among other factors, contributed to the acceleration of price increases.
Can inflation decrease?
Many central banks consider that an inflation rate of about 2 percent, or slightly higher, represents a stable level that does not negatively affect consumers’ purchasing decisions.
However, if inflation falls significantly below this level, consumers may postpone their purchases if they expect prices to continue to decline.
