US Inflation Rose to 3.7% in September 2026, Exceeding Expectations

The US inflation rate rose to 3.7 percent in September 2026, exceeding economists' expectations of 3.6 percent. The Consumer Price Index (CPI) was released on 14 October 2026 and showed an increase from 3.4 percent in August. Core inflation, which excludes volatile energy and food prices, climbed from 2.4 percent in August to 2.6 percent in September, while economists had expected only 2.5 percent.

On a monthly basis, the CPI rose by 0.6 percent – the strongest monthly increase in five months. In August, the rate had been 0.4 percent. The core rate remained at 0.3 percent, disappointing forecasts that had predicted a decline to 0.2 percent.

Energy Prices Drive Inflation

The primary driver of inflation was energy prices. Petrol became more expensive by 34.2 percent year-over-year, after the rate had been 27.4 percent in August. Within a month, petrol prices rose by 9.1 percent and accounted for more than half of the entire monthly price increase. Heating oil prices developed even more dramatically: they rose by 74.2 percent, compared with 52 percent in the previous month.

Inflation accelerated in other areas as well. Housing costs rose from 3.0 percent to 3.2 percent year-over-year. Price increases also occurred in recreation, used cars, education, airline tickets, medical care and apparel.

Offsetting developments partially dampened inflationary pressure: food prices slowed their increase from 2.7 percent to 2.5 percent. Prices in the communications sector declined.

Purchasing Power Shrinks Significantly

Inflation-adjusted average wages fell by 0.5 percent in September 2026 alone. This development represents a noticeable loss of purchasing power for American households, whose consumer spending accounts for roughly two-thirds of the US economy.

Markets Under Pressure

Stock markets reacted to the release of inflation data on the publication day with significant losses. The Nasdaq index fell by around 1.9 percent, the S&P 500 lost approximately 1.1 percent. The Wall Street Journal called 14 October 2026 the worst trading day for US stocks since July.

The sharp reaction, despite the deviation from forecasts being only 0.1 percentage points, had two causes: the Federal Reserve had raised rates in early October and signalled that a further increase might be necessary. Reuters reported that Fed officials called the September data "disappointing." Markets reassessed the probability of a second consecutive rate increase at the Fed meeting in late October – the probability rose to around 36 percent.

Technology and AI companies suffered particularly hard, as their profits are expected largely in the future. Many large technology and AI companies suffer more from higher interest rate expectations than established business models with near-term returns. Bond yields and the dollar rose following the inflation release, as markets adjusted their assessment of the central bank's monetary policy.

Outlook: Gradual Decline Expected

Trading Economics forecasts that US inflation will decline to 3.4 percent by the end of the fourth quarter of 2026. For 2027, a rate of around 2.6 percent is expected, and for 2028 approximately 2.5 percent. The acceleration from 3.4 percent in August to 3.7 percent in September suggests that price pressures are spreading beyond volatile energy and food categories.

Three Cash-Flow Stocks for the Current Environment

In an environment of rising inflation and higher interest rates, companies with stable cash flows and reliable dividends gain in importance. In contrast to growth-oriented technology stocks, whose valuations suffer from rising interest rates, such stocks offer investors current returns that can partly serve as an inflation hedge.

Characteristics of Cash-Flow-Strong Stocks

Companies with robust free cash flows have sufficient liquid funds after deducting all operating expenses and investments. This liquidity enables dividend payments, share buybacks or debt reduction – even in economically uncertain times. Particularly valuable are business models with recurring revenue, low sensitivity to economic cycles or pricing power that allows companies to pass cost increases to customers.

Investors should pay attention to the following metrics: the free cash flow margin shows how much of revenue remains as freely available liquidity. The dividend yield gives the annual payout in relation to the share price. The payout ratio illustrates what portion of earnings or cash flow is used for dividends – lower values signal sustainability and room for growth.

Sectors with Structural Advantage

Traditionally, certain industries prove more resilient during inflationary periods: utilities and infrastructure providers benefit from regulated pricing models and long-term contracts. Consumer goods manufacturers with strong brands can push through price increases. Energy companies benefit directly from higher commodity prices. Healthcare providers and pharmaceutical companies have relatively price-inelastic demand.

In the current market environment, characterised by elevated energy prices and broadening inflation pressure, defensive quality stocks can serve as stabilising anchors in a portfolio. What matters less is short-term price appreciation than the ability to maintain real purchasing power over the long term through dividends and cash flow growth.