US Import Prices Post Largest Annual Increase in More Than Four Years

WASHINGTON, October 16 — US import prices rose more than expected in September, driven by higher energy costs and increases across a broad range of goods, adding to evidence that inflationary pressures are spreading throughout the economy as the conflict in the Middle East continues.

The Labor Department’s report on Friday followed data earlier in the week showing stronger-than-expected increases in consumer and producer prices, reinforcing concerns that inflation is extending beyond energy-related costs.

Import prices increased 1.1% in September after a downwardly revised 0.5% rise in August. Economists surveyed had expected a 0.8% increase. Over the 12 months through September, import prices climbed 8.1%, the largest annual increase since July 2022, compared with 6.7% in August.

Energy Costs and Tariffs Add to Inflation Pressures

The prolonged US-Israeli war with Iran has disrupted supply chains and kept oil prices elevated. Economists have also pointed to President Donald Trump’s import tariffs as contributing factors behind rising prices.

A  poll found that approximately 78% of Americans blamed Trump’s policies for the increasing cost of living.

Christopher Rupkey, chief economist at FWDBONDS, said consumers were facing higher prices across a wide range of everyday purchases, adding that import inflation had become more widespread in 2026.

Imported fuel prices rebounded 4.8% in September after declining 0.2% in August. Food import prices were unchanged following a 0.6% decline in the previous month.

Excluding food and fuels, import prices increased 0.7%, matching August’s rise. These core import prices were up 6.2% year over year.

Technology and Consumer Goods Become More Expensive

Capital goods prices rose 0.9% for a second consecutive month, reflecting higher costs for computers, computer peripherals and semiconductors amid the ongoing AI investment boom.

Prices for imported industrial and service machinery also increased, more than offsetting declines in scientific and medical machinery prices.

Imported consumer goods, excluding automobiles, rose 0.4%, driven by a 0.7% increase in durable manufactured goods. Prices for imported vehicles, parts and engines climbed 0.3%.

Prices of goods imported from China increased 0.7%, their largest monthly gain since December 2021. Chinese import prices were up 3.1% over the year through September. Prices for imports from Japan, the European Union, Mexico and Canada also increased.

International air passenger fares surged 12.6% in September after declining in July and August.

Federal Reserve Faces a Difficult Inflation Outlook

Despite the latest inflation figures, financial markets continued to expect the Federal Reserve to leave interest rates unchanged at its October meeting, with another increase potentially coming in December.

The central bank raised its benchmark overnight interest rate by 25 basis points in September, bringing the target range to 3.75%-4.00%.

Fed Chair Kevin Warsh, speaking in Bangkok on Friday, did not indicate whether further rate increases would be necessary or when they might occur.

Economists are also monitoring the Personal Consumption Expenditures price index, the Federal Reserve’s preferred inflation measure. Estimates for September’s core PCE inflation ranged from 0.31% to 0.36% monthly, potentially rounding to 0.4%, which would put the annual rate at approximately 3.1%.

Oren Klachkin, a financial markets economist at Nationwide, said inflation could accelerate in the near term but warned that price pressures might persist longer than expected, complicating the Fed’s efforts to bring inflation back toward its 2% target.

Manufacturing Growth Remains Uneven

A separate Federal Reserve report showed US factory production increased 0.3% in September, recovering from a 0.2% decline in August. Businesses also replenished inventories to meet continued domestic demand.

However, manufacturing output grew at an annualized rate of just 0.7% in the third quarter, down from 5.6% in the previous quarter.

Semiconductor and related electronic component production surged 28.4% during the third quarter, highlighting the strength of AI-related manufacturing. In contrast, motor vehicle and parts production fell 3.0% in September and contracted at a 3.4% annualized rate over the quarter.

Veronica Clark, an economist at Citigroup, said strong AI demand was supporting business investment, but much of that investment involved imported goods rather than domestic production.

Manufacturing capacity utilization edged up to 75.9% in September from 75.8% in August, remaining 2.3 percentage points below its long-run average.

Economists warned that higher energy prices, trade tensions with Canada, rising borrowing costs and fading tax incentives could further weigh on industrial activity. Record-high diesel prices could also increase transportation and distribution expenses, eventually pushing up prices at supermarkets and other retailers.

Sal Guatieri, a senior economist at BMO Capital Markets, said manufacturers might absorb some of the increase in energy and other input costs, but consumers could still face further price increases.

Markets React as Inflation Concerns Grow

Following the latest data, Wall Street stocks were mixed, the US dollar weakened against a basket of currencies, and Treasury yields declined.

The report highlights the challenge facing policymakers as higher import costs, geopolitical disruptions and tariffs contribute to inflation while manufacturing growth loses momentum.

With consumer and producer prices also rising, investors will be watching upcoming inflation readings and Federal Reserve decisions for signs of whether price pressures will continue to intensify or begin to ease.