US import prices rose more than expected in September, with the year-on-year increase hitting the highest level in more than four years, reinforcing together with consumer and producer price data released earlier this week that inflation pressures are spreading across the board.
Data released by the US Labor Department on Friday showed that import prices rose 1.1% month-on-month in September, above the market expectation of 0.8%; over the 12 months through September, import prices rose 8.1% year-on-year, the largest increase since July 2022. A rebound in energy product prices was the main driver, while capital goods and consumer goods prices also rose across the board.
With this, all of this week's US inflation data have been released, with consumer prices, producer prices and import prices all stronger than expected, making the market's judgment increasingly unanimous that inflation has moved beyond the energy sector and is spreading into the broader economy.
Nevertheless, financial markets currently still expect the Federal Reserve to pause rate hikes at this month's policy meeting and restart tightening in December.
Inflation pressures erupt on multiple fronts, Trump policies cited as main cause
This import price report and this week's consumer and producer price data corroborate each other, jointly painting a picture of broadly rising inflation.
Economists attribute the acceleration in inflation to the Trump administration's tariff policies and the prolonged US-Israel war against Iran, which has disrupted supply chains and continued to push oil prices higher. A joint Reuters/Ipsos poll also showed that about 78% of Americans believe Trump's policies are the main reason for the rising cost of living.
FWDBONDS chief economist Christopher Rupkey said:
"Americans face inflation threats at every level, no matter where they turn, they have to pay more for the same goods that were cheaper just a few months ago. Before the Trump 2.0 economic policies were introduced in January 2025, there was no inflation in imported goods, but this year it is everywhere."
Energy and capital goods prices both strengthen
Looking at the breakdown, energy was the most important factor driving September import prices. Imported fuel prices rebounded 4.8% month-on-month, after falling 0.2% in August.
Food prices remained unchanged, after falling 0.6% in August. Core import prices excluding food and fuel rose 0.7%, unchanged from the previous month, and were up 6.2% year-on-year.
Capital goods prices rose 0.9%, unchanged from August's increase, mainly driven by higher prices for computers, peripherals and semiconductors, with the AI investment boom behind the move.
Import costs for industrial and service machinery also rose, offsetting a decline in prices for scientific and medical machinery.
Import prices from Japan, the European Union, Mexico and Canada increased. Imported air passenger fares jumped 12.6% in September, but after seasonal adjustment, this component was essentially flat in its impact on the personal consumption expenditures (PCE) price index that the Fed closely tracks.
Core PCE may accelerate upward, Fed policy path under pressure
This import price data has a direct impact on the Fed's policy outlook.
Economists' estimates for the month-on-month increase in the September core PCE price index are concentrated in the range of 0.31% to 0.36%, which could round to 0.4%, corresponding to a year-on-year increase of about 3.1%. In August, core PCE rose 0.2% month-on-month and 3.0% year-on-year.
Nationwide financial markets economist Oren Klachkin said: "We expect inflation to accelerate in the near term, but not to form a plateau at a high level. That said, the risk is that inflation stays above expectations for longer and is harder to suppress than the Fed thinks."
Manufacturing growth but momentum slowing, AI effect mixed
Another report released by the Fed on the same day showed that factory output rebounded 0.3% month-on-month in September, after falling 0.2% in August, and rose 1.1% year-on-year. Businesses replenishing inventories to meet strong domestic demand, as well as the continued AI investment boom, provided support for manufacturing.
However, manufacturing slowed markedly overall in the third quarter, growing at an annualized rate of only 0.7%, a sharp pullback from 5.6% growth in the second quarter. Semiconductor and related electronic component output surged 28.4% in the third quarter, but auto and parts production fell 3.0% in September and shrank at an annualized rate of 3.4% in the third quarter.
Citigroup economist Veronica Clark pointed out: "Although strong AI demand has boosted business investment, much of that investment is imported, meaning the benefit to domestic production is not as significant as the headline data suggests."
Manufacturing capacity utilization rose slightly to 75.9% in September from 75.8% in August, still 2.3 percentage points below its long-term average. BMO Capital Markets senior economist Sal Guatieri judged on this basis that producers may have some room to absorb part of the rise in energy and other input costs, but not all of it, as this week's hotter-than-expected consumer and producer price reports have confirmed.
Outside AI-related industries, elevated energy prices, trade friction with Canada, rising borrowing costs and the fading stimulus effect of tax incentives all pose downside risks to manufacturing.
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