Time to wrap up….

Republicans are entering the midterm elections with the highest rate of inflation since the spring, according to a government report released today.

US price increases reached an annual rate of 3.7% in September, according to the latest data from the Bureau of Labor Statistics, up from 3.4% in August. This final inflation report before the pivotal midterm elections comes amid polls showing widespread dissatisfaction with the Trump administration over the cost of living.

Price increases are the highest they have been since the annual inflation rate reached a three-year peak of 4.2% in May. Gasoline accounted for over half of overall price increases, up 34% from last year. Fuel oil, which is used to heat homes, increased by 74% from last year, a worrying sign for households heading into the winter. Air travel, which many Americans rely on during the holidays, also increased by 22.4%.

Overall, consumer prices went up 0.6% from August. Core inflation, which strips out volatile energy and food prices, also ticked up by 0.3% in September to 2.6% annually.

Here’s the rest of today’s news:

The Fed’s next meeting, on 27-28 October, is just a week before the midterm elections.

Rogier Quaedvlieg, economist at ABN AMRO, predicts the Fed will avoid raising interest rates then – but will hit borrowers with a hike in December.

Quaedvlieg writes:

September CPI inflation was hotter than expected for the second consecutive month.

Core inflation rose by 0.34% m/m, while headline inflation increased by 0.649%, lifting the y/y rate to 3.7%. This was above consensus but in line with our forecast. The core reading was the key surprise, prompting markets to raise the implied probability of an October rate hike from less than 25% to more than 50%.

Energy prices are beginning to have a significant impact, including on airline fares. Prices of new and used cars also increased as new model-year vehicles entered the market. The AI buildout again added to price pressures, with large increases in computer software and accessories, as well as computers and peripherals. Although inflationary pressure was broader than in last month’s exceptionally concentrated report, the share of CPI components showing elevated inflation continues to decline.

We therefore still expect inflation to ease over the course of the year. We also continue to expect the Fed to hold rates in October before raising the policy rate by a further 25 bps in December.

Stocks are falling at the start of trading on Wall Street, as today’s US inflation report disappoints investors.

The S&P 500 sharesindex has fallen by 0.4%, shedding 32 points to 7,773 points.

The tech-focused Nasdaq is down 0.5%.

US government borrowing costs are pushing higher, after today’s inflation report hardened expectations of interest rate rises from the Fed.

The yield on two-year Treasury bills has risen by 13 basis point (0.13 of a percentage point) to 4.92%, hitting their highest level since 29 September.

Ten-year US Treasury yields are up 9.5bps to 5.3% – towards the 24-year highs set earalier this month.

This adds to the fiscal mess facing the US (something the IMF warned about this morning); high bond yields push up the cost of servicing the $40tn US national debt, and makes issuing new debt more expensive too.

The US dollar has hit an 18-month high, as traders anticipate that today’s inflation reading could prompt an increase in US interest rates.

The dollar index, which tracks the greenback against a basket of currencies, is up 0.5% to its highest level since April 2025.

This jump in inflation increases the chances that the US Federal Reserve raises interest rates later this month.

According to CMEFedwatch, a quarter-point Fed rate hike in October is now a 43% chance, up from 22% yesterday.

Stephen Brown, Chief North America economist at Capital Economics, says:

The upside surprise to core CPI in September was broad-based rather than due to any obvious temporary factors, therefore bringing an October rate hike back into play and presenting upside risks to our forecast for just two more 25 bp hikes from the Fed.

Today’s higher than expected inflation reading is “a blow to Donald Trump ahead of November’s midterms”, says Richard Carter, head of fixed interest research at Quilter Cheviot.

It could also encourage the US Federal Reserve to raise interest rates, which would not please Trump at all.

In a note headlined “Ugly US inflation data may shift Fed into more aggressive hiking mode”, Carter explains:

The President has been desperate to show he is getting inflation under control and providing the environment for rate cuts, even going so far as allowing Russian diesel back into the market, but those moves are proving too little too late as the war in the Middle East continues to have a grip on the global economy.

“CPI came in at 3.7%, slightly above expectations, and similarly core inflation was above predictions, suggesting that prices are feeding into the wider economy. Fuel and energy do remain the primary driver of inflation and certainly explains the actions of the US administration of late.

“This data is going to heap a whole lot of pressure on the Federal Reserve. Any chance of cuts to help with a stumbling labour market have essentially been vanquished with such elevated levels of inflation. The conflict in the Middle East will not be resolved any time soon, and as such, the current levels of inflation will likely remain well into 2027.

“Bond yields have been under scrutiny in recent weeks as those inflation concerns harden, and this will do little to appease the market. It is not inconceivable that ten-year treasury yields continue to march higher. Indeed, today’s data means another rate hike this year from the Fed cannot be ruled out as it may need to get more aggressive in its policy decisions in order to quell other inflationary trends.”

In a worrying sign, core inflation across the US has also risen.

The inflation measure which strips out food and energy costs rose to 2.6% in the year to September, up from 2.4% in August.

That could be a sign that inflationary pressures are broadening, which would concern central bankers.

George Brown, senior economist at Schroders, says:

“While energy prices might be grabbing the headlines, today’s report suggests the inflation problem runs much deeper. A stronger-than-expected core inflation reading adds to mounting evidence that domestic price pressures are becoming more entrenched, rather than easing.

“Markets are right to assume that policy will need to become much more restrictive to return inflation to target. The question is whether the Fed is prepared to tighten as much as the inflation outlook demands.”

Newsflash: US inflation jumped in September, and by more than expected, as the soaring cost of motor fuel pushed up the cost of living.

The US Consumer Prices Index roses by 3.7% in the year to September, up from 3.4% in August. Economists had forecast a smaller rise, to 3.6%.

Prices rose by 0.6% in Spetember alone.

Gasoline prices jumped by 9.1% in September, and were 34% higher tha a year ago, as motorists across America felt the impact of Donald Trump’s Middle East war at the pumps.

Those price pressures prompted Trump’s deal with Vladimir Putin last Friday – but as reported earlier, it’s not expected to unlock much extra supplies to the market.

Back in the financial markets, the euro has dropped to a new 16-month low against the pound.

Sterling rose over €1.1850 this morning, the highest since June 2025.

Bank of America’s profits have been hit by the cost of a billion-dollar-plus fine for money laundering failings.

BofA has reported net income of $6.9bn for the third quarter of theis year, but it would have made $8.1bn without the $1.2bn fine imposed by the US Treasury Department earlier this week for failing to detect potential money laundering and other illegal activity.

The bank’s revenues rose by 3% in the quarter, thanks to higher net interest income (NII) – as it benefitted from higher interest rates – and asset management fees.

BofA’s chair and CEO Brian Moynihan says:

“The team delivered organic growth, deepening client relationships and adding new ones. While investment banking and sales and trading revenues were lower, commercial lending grew in every client segment.

Our momentum, reflected in growth in client deposits, wealth flows and consumer activity, supported solid earnings, balance-sheet growth and long-term shareholder value.”

Shortgages of diesel that have driven prices to record level are set to extent well into next year, the International Energy Agency has warned.

In its monthly oil market report, just released, the IEA warn that prolonged disruptions to Middle Eastern and Russian exports have led to a fall in stocks of diesel, ahead of the peak winter demand season.

And while prices were pushed higher, demand remained strong, which the IEA says was partly due to “government measures aimed at easing the impact of high prices on consumers”.

This allowed oil refiners to cash in with higher profit margins (technically known as the ‘diesel crack spread’), at a time when drivers are paying billions of pounds more at the pumps:

The agency warns that it could take until the second half of next year for inventories to be replenished, saying:

Falling inventories, soaring cracks, and steepening levels of backwardation have signalled the need for additional supplies.

However, even with a rapid recovery expected in refinery throughputs into year-end, gasoil supply falls short of meeting demand in 4Q26, suggesting that the replenishment of lost inventories, outside of typical seasonal fluctuations, is unlikely before 2H27.

The IEA also reckons that Donald Trump’s deal to buy diesel from Russia is unlikely to help much, explaining:

The recently announced easing of Russian diesel export restrictions is unlikely to materially alter the global gasoil market balance as the current export constraints stem from a lack of operational Russian refinery capacity.

UK government borrowing costs are dropping this morning, which will please John Healey and the IMF alike!

The yield, or interest rate, on UK 10-year bonds is down 3.5 basis points to 5.4%, while thirty-year bond yields are 3bps lower at 5.89%.

That follows a report in the Financial Times this morning that Healey is expected to avoid increasing UK borrowing in the budget later this month.

The FT reports:

Chancellor John Healey is expected to pay for all new giveaways in this month’s Budget — including a cost-of-living package — with higher taxes or spending cuts rather than more borrowing.

People briefed on UK Budget preparations told the FT that the October 28 fiscal package would be “scorecard positive” in 2029-30, the final year of the parliament, meaning that all extra discretionary spending was fully funded.

China is on track to post a record high trade surplus this year, after exports soared in September.

New trade data shows that China’s exports soared by 36.3% year-on-year last month, the fastest monthly increase since February.

Imports jumped by 31.0%.

This pushed September’s trade surplus to $133.53bn, meaning China has now recorded a surplus of $938bn over the first nine months of this year.

That indicates the total surplus for 2026 could come in above the record $1.189tn recorded in 2025.

ING economist Lynn Song says:

China’s exports, imports, and trade surplus all comfortably beat expectations in September as the trade boom continued. Key trade ties look set to remain stable through year-end, which should keep this year’s key growth engine humming.

Ed Miliband is due to speak at the IMF meeting today, and our economics editor Heather Stewart has the inside line on his plans:

The foreign secretary, Ed Miliband, will claim the global financial system is failing developing countries, as he calls for a “new deal” for governments struggling under the burden of debt.

Promising to throw the UK’s diplomatic weight behind urgent reform, he will evoke the example of the Gleneagles summit under the last Labour government in 2005 – the culmination of the Make Poverty History campaign.

“The global financial system and indeed the global order is failing to serve developing countries on debt, on resilience and on climate. This is not just against our values but against our national interest,” Miliband is expected to say.

“In the interconnected world we live in, more than ever, the opportunities and challenges we confront are collective.”

Speaking in Bangkok on Wednesday, he will call for the World Bank and other multilateral development banks (MDBs) to use the resources they have available to lighten the load for governments trapped by hefty borrowing costs.

“We need action on developing country debt through the MDBs,” he is expected to say.

“Action that leverages the balance sheets of the international financial institutions to support these countries to repay over longer time horizons, and crucially, refinancing, with better rates, to give them precious fiscal space.”

Here’s the full story:

Away from the IMF meeting, the boss of Heathrow airport has claimed it would be a “huge missed opportunity” not to build a third runway.

Thomas Woldbye told BBC Radio 4’s Today programme it would be “good to know” the government’s position on the project, after prime minister Andy Burnham refused to say whether he backed expansion.

Woldbye, who is due to appear before parliament’s transport committee today to discuss the issue, warned that Heathrow’s shareholders will invest elsewhere in the world if the third runway is blocked, rather than in the UK, arguing:

“It’s not about allocating this money elsewhere. It’s private money. It’s not public money. So hence, it will not go into the UK. I think that would be really a sad, huge missed opportunity for this country.”

Elsewhere in Bangkok, Bank of England chief economist Huw Pill has suggested that the financial markets may be getting carried away by anticipating four increases in UK interest rates over the next year.

Speaking on the sidelines of the IMF’s meeting, Pill said:

“Is it obvious that we will need to move, follow market pricing to four 25 basis-point hikes and so forth? So there, I would be a little bit more sceptical.

“I think it is important we get ourselves in the right position. I think we have some work to do there. I think that is something that probably is increasingly obvious now. But is four hikes appropriate over the next year?”

Looking at the market pricing this morning, a rate rise in November looks very likely (a 92% chance). The markets then expect three further rate rises by next September.

Bank of England governor Andrew Bailey and IMF managing director Kristalina Georgieva have issued a stark warning about the growing risks of cyber-attacks and crime in the age of AI.

Georgieva cited her childhood growing up in Eastern Europe, when wary citizens didn’t trust the system, so kept their money in a shoebox under the bed.

She warned:

“What I worry, today, is that unless we figure out how to get ahead of this curve, given the speed, the scale and the cost of fraud growing [going] up, we may end up with lots of people with shoeboxes under their beds.”

Bailey agreed, citing a warning from Anthropic this week that rogue AI agents may ‘self-replicate’ to hijack everyday devices.

“If you try to say what’s at the heart of this debate about AI? For me, it’s about trust in technology and it’s about human control to achieve that trust in technology,” he said, adding:

“I’m going to use a sports metaphor for a moment. I think this technology, you know, is arming the offence, but it can also arm the defence as well.”

And he called for big tech firms to take more responsibility for fraud committed via their platforms. Contrasting their status today with the legal status in the UK of outlets such as newspapers, which are responsible for everything they publish, he said:

“We’ve moved into quite an extreme position of, well, these platforms are open to everybody and there’s no real liability to the provision of the platform to what’s on it. Guess what? Everything’s on it. you know, the good, the bad and the incredibly ugly and and downright criminal and terrible.”

He added,

“I don’t go around pointing the finger at people and saying, ‘you are bad’.

What I have said is, look, there is responsibility all around. And we need to evolve to a world where everybody understands this responsibility, and everybody is then a part of addressing the problem, because we this cannot be done by by finance alone, given the media that are being used now.

We’ve said, ‘look, we’re all in this together.’ The companies that are providing the big tech platforms, the ones we all know, the household names globally, you’ve got to be part of this.”

The pair were speaking on a panel to launch a “Bangkok blueprint for fraud resistance financial services” at the IMF/World Bank annual meetings.

Wednesday morning at the IMF/World Bank annual meetings in Bangkok saw IMF managing director Kristalina Georgieva give her opening press conference, our economics editor Heather Stewart writes.

She enthusiastically reiterated the IMF’s call for major economies - including the US - to implement tougher fiscal policies. “Make urgent repairs to the fiscal house, before the cracks widen,” she said - and later:

“Fundamentals matter. Get your house in order. Otherwise, your people, your businesses will pay a price.”

She highlighted the imbalances between countries with big trade and fiscal surpluses - including China - and those with deep deficits, such as the US.

“Surplus countries need to increase domestic consumption. Deficit countries need to save more, cut debt, cut the deficits over time.”

Georgieva was also asked about fiscal conditions in Europe - including France’s budget predicament; and why the UK’s bond yields remain so high, despite having a plan to cut its deficit - which the IMF has praised this week.

On the UK, she said:

“we need to recognise that it is not just a systemically important, signficant economy, but London is one of the capitals of the world for the finance community. And traditionally we have seen more attention in relative terms in the UK to what the government is doing, what is happening - a bit more sensitivity.”

She added:

“I think the UK government knows they need to stay the course: they need to reaffirm this confidence in the direction of travel.”

On France, she insisted she was “positive,” about the government’s prospects of passing a budget that reduces future deficits and might reassure financial markets; but suggested the country’s travails were having knock on effects.

She says:

“We are seeing, across the eurozone, an impact in terms of yields edging upwards, even in countries that traditionally never see their yields move.”

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

The jump in government borrowing costs this year is causing concerns at the International Monetary Fund, as policymakers gather in Bangkok for its annual meeting.

In its new fiscal monitor report, released this morning, the IMF is warning that the rise in sovereign bond yields has “raised the fiscal stakes” facing governments, as they try to keep borrowing under control.

Higher borrowing costs are adding to fiscal pressures at a time of high debt, making credible consolidation more urgent, it points out.

And it is demanding action, warning that “the more countries wait, the more painful the adjustment becomes.”

This is easier said than done, though! France, for example, faces a struggle to push through a budget that would only cut its annual deficit to 5% of GDP. And in the UK, chancellor John Healey could face a battle with his own MPs if he proposes welfare cuts in his budget later this month.

The IMF points out that since February – when the Iran war began, and oil prices jumped – the average 10-year government bond yield for G7 countries increased by over 1 percentage point, reaching its highest level in nearly two decades.

With global public debt expected to exceed 100 percent of global GDP for the first time since the immediate aftermath of World War II, this is not a great time for borrowing costs to be hitting the roof.

Or, as the IMF puts it:

In major advanced economies, high debt, spending pressures, and the prospect of large bond issuance in the years ahead are putting upward pressure on the yields investors demand to hold longer-term bonds.

Higher benchmark yields in major economies can also spill across borders, worsening debt dynamics elsewhere.

The IMF points out that the cost of servicing government debts have already jumped sharply. In the US, for example, interest payments are projected to climb from about 2.8% of GDP before the pandemic to 5.7% in 2031, which is roughly equal to projected expenditure on Social Security.

It’s worse for low-income countries, where interest payments today consume over 15% of tax revenues.

The agenda

• 9am BST: IEA oil market report

• 9am BST: Foreign secretary Ed Miliband speaks at the IMF Annual Meeting in Bangkok

• 9.15am: Treasury select committee hearing on Heathrow expansion plans

• 1.30pm US inflation report for September

• 2.15pm Treasury Committee hearing on the Budget 2026