Near-Term Inflation Expectations Hit Their Highest Level Since May 2023

U.S. consumer prices rose 3.7% year over year in September, while median one-year inflation expectations reached 3.9%, adding to pressure on the Federal Reserve’s effort to bring inflation to its 2% goal.

The year-over-year Consumer Price Index rate rose to 3.7% in September from 3.4% in August. Gasoline prices increased 9.1% during the month and accounted for more than half of the overall index’s monthly gain. Core CPI, which excludes food and energy, rose 2.6% from a year earlier.

Median expected inflation over the next year increased 0.3 percentage point from August to 3.9%, its highest level since May 2023. Five-year expectations held at 3%.

In an Oct. 12, 2026, speech, Cleveland Fed President Beth Hammack said prolonged elevated inflation could entrench what she called an “inflationary mindset.” She described price pressures as relatively broad-based and said a restrictive monetary policy stance was appropriate to return inflation to 2%.

The Fed measures its 2% inflation goal using the personal consumption expenditures price index, which is separate from CPI. The unchanged five-year expectations reading does not show that long-term expectations have become unanchored, while Hammack’s remarks describe a risk that prolonged inflation could influence household and business decisions.