Inflation Came in Hotter Than Expected Last Month. Odds of a Fed Rate Hike In October Are Surging.

Odds of an interest rate hike by the Federal Reserve surged after September’s inflation read came in hotter than expected on Wednesday.

Chances now stand above 49%, compared to 22.1% before the figures were released, according to the CME Group’s FedWatch tool.

The Bureau of Labor Statistics noted that inflation gained 0.6% last month. The annual figure stood at 3.7%, compared to the 3.6% expected by analysts.

More than half of the increase was explained by gas prices, which rose more than 9% last month.

“The energy index increased 5.2 percent over the month following a 2.1-percent increase in August. The shelter index rose 0.4 percent in September after rising 0.3 percent in August. The index for food was unchanged in September, as the index for food away from home increased 0.2 percent and the index for food at home fell 0.1 percent,” BLS detailed.

Fed officials expected to hike rates again before the latest reading, according to the most recent minutes of the Federal Open Market Committee’s (FOMC).

“Most participants assessed that another increase in the target range for the federal funds rate would likely be appropriate by year end,” reads a passage of the document.

However, it does not specify when the officials expect to implement the hike and future decisions will “depend on incoming information and its implications for the outlook and the balance of risks.”

Inflation is also impacting consumer sentiment, which hit a five-month low in October after dropping further over the first days of the month.

The survey of consumers from the University of Michigan released last week showed the figure at 46.3, compared to 48.1 last month. It is also a 13.6% drop compared to the same month last year.

Surveys of Consumers Director Joanne Hsu detailed in a statement that “buying conditions for durables plummeted amid high prices and borrowing costs.”

Looking at the partisan divide, she noted that “increases in sentiment among Democrats and Republicans were offset by a decline among independents this month.”

“Overall, sentiment for lower-income consumers and those with smaller stock porfolios dropped steeply this month, groups that have fewer resources to weather increases in prices. Frustration over cost-of-living continues to mount, as consumers across the political spectrum believe that the trajectory of the economy has weakened since the beginning of the year,” she added.