Energy heats up inflation, keeping economic growth uneven

Trend watch

Weekly air passenger counts have continued to climb, up 5.3% to 18.4 million in the past week. If the typical seasonal pattern holds, it should throttle down by month end, remaining on that plateau through mid-November. Traffic then spikes again around Thanksgiving. Unfortunately, the year-to-date is running -0.6% behind 2025’s record pace.

Our take

Consumer inflation came in hotter than expected in September, with rising energy costs once again playing a central role. Higher gasoline and utility prices pushed headline inflation higher, while transportation services also contributed to the uptick. The latest inflation data reinforce the extent to which energy markets remain a key driver of broader price pressures, complicating the inflation outlook despite softer trends across some other categories.

The influence of energy was evident beyond consumer prices. Wholesale inflation accelerated in September as higher energy costs flowed through the production pipeline, raising input costs for businesses. The renewed increase suggests that energy-related inflationary pressures remain persistent and could continue to filter through to consumers in coming months, potentially slowing the pace of broader disinflation.

Consumer spending proved resilient during the month, but much of the strength reflected higher gasoline prices rather than a broad-based improvement in demand. Retail sales were lifted by stronger receipts at gas stations, while gains elsewhere were considerably more muted. In fact, nearly half of the major retail categories posted declines in September, highlighting a consumer sector that remains selective and cautious despite continuing to spend.

Housing remains challenged. Existing home sales increased in September, suggesting that buyer activity is trying to stabilize despite elevated mortgage rates. However, home prices declined, which reflects the affordability challenges and lack of buyers, continuing to put downward pressure on pricing.

Meanwhile, the industrial side of the economy showed renewed momentum. Industrial production improved in September, accompanied by an increase in capacity utilization, signaling firmer activity across factories, mines, and utilities.

Taken together, the latest data portray an economy that continues to expand but remains highly uneven, with energy prices driving inflation higher, consumers showing signs of restraint, housing struggling to gain traction, and manufacturing providing an important source of support.

Bottom line

Higher fuel prices continue to strain household budgets and fuel inflation concerns, contributing to a third straight decline in consumer sentiment. Yet, rising prices and record container traffic suggest demand remains firm and that the U.S. economy continues to plod through the headwinds.