Inflation Heats Up, Stagflation Risk Rises

September’s US Consumer Price Index (CPI) report delivered another hot inflation print, with both headline and core inflation coming in higher than expected. I think this adds to the squeeze on American households and complicates the picture for the Federal Reserve (Fed).

Key takeaways

Headline inflation accelerated sharply. Headline CPI rose 0.6% month over month (m/m) in September, up from 0.4% m/m in August, the largest monthly jump since May. Year over year (y/y), headline inflation rose to 3.7% from 3.4% in August.

Core inflation is moving higher, too. Core CPI rose 0.3% m/m, the same pace as in August, but it is now up 2.6% y/y, an increase from 2.4% y/y in August.

Energy did much of the heavy lifting. Energy prices rose 5.2% in September and accounted for a large portion of the increase in headline inflation.

Wages are not keeping up. With inflation at 3.7% y/y and the September jobs report showing wage growth of just 3% y/y, many American households are losing purchasing power. This is a real problem. In a speech yesterday, Cleveland Fed President Beth Hammack described the pain she hears about when talking with low- and middle-income workers who are having trouble paying their bills. And American households were already having difficulty keeping up with their bills last year. In the 2025 Survey of Consumer Finances, 20% of families were behind on loan payments at the end of 2025 (versus 12% at the end of 2022).

Price pressures are broad-based. It should come as no surprise that inflation remains elevated given all the inflationary forces at work in the US economy, especially the wars in the Middle East and eastern Europe. Hammack also highlighted the broad-based nature of price increases, saying she is worried that inflationary pressures are sticky and can become entrenched, especially in the services sector.

With this print, I see the risk of stagflation continuing to rise.

Market reaction, looking ahead

This hot print caused markets to rethink the Fed’s meeting later this month. Just yesterday, the CME Group FedWatch Tool showed only a 22% probability of a rate hike; after the CPI release, that probability rose to 49%.

Despite this, I do not expect the Fed to hike rates at its October meeting. It falls one week before the midterm elections, and so I think the bar is high for what could force the Fed to hike. Consumer inflation expectations are elevated, but they are not running away: the most recent reading showed 5-10 year ahead inflation expectations at 3.5%, the same level as in April and below the 3.9% reading in May (Figure 1).

What could this mean for portfolios as stagflation risks rise? Our research (Oxford-Man Institute) has shown that, in stagflationary environments, multi-asset trend strategies and gold and precious metals have performed well¹.

Figure 1: US consumers’ 5-10 year ahead inflation expectations

Source: University of Michigan Surveys of Consumers, October 2023 to October 2026; Oct 2026 figures were preliminary as of writing

1. Past performance is not indicative of future results.