Inflation Heats Up, Stagflation Risk Rises

The September US inflation report increases stagflation risks, but Kristina Hooper does not expect the Federal Reserve to raise rates at its October meeting.

• Headline CPI rose 0.6% month over month in September, up from 0.4% in August, while annual inflation accelerated from 3.4% to 3.7%.
• Core CPI increased 0.3% month over month and 2.6% year over year, compared with 2.4% year over year in August.
• Energy prices jumped 5.2% in September and accounted for much of the headline increase, while services inflation remains broad-based and potentially sticky.
• With inflation at 3.7% and wage growth at 3%, households are losing purchasing power; 20% of families were behind on loan payments at the end of 2025, versus 12% at the end of 2022.
• Markets raised the implied probability of an October Fed hike from 22% to 49% after the CPI release, although five-to-ten-year inflation expectations remained at 3.5%, below May's 3.9%.

Takeaway: Hooper sees rising stagflation risk but expects the Fed to remain on hold because inflation expectations are elevated rather than uncontrolled; Oxford-Man research indicates that multi-asset trend strategies, gold and precious metals have historically performed well in stagflationary environments.