‍Putting Today’s Inflation and Interest Rates in Perspective

If you filled up your car this month, you probably noticed that prices are up. Gas costs about a quarter more than it did a year ago, and diesel recently set a record.

At the same time, the government’s inflation report tells a more measured story. When food and energy are removed from the calculation, prices rose 2.4% over the past year, the slowest pace in more than five years.

Those two realities may seem at odds, but both can be true. In fact, the gap between them is one of the more useful things to understand about what is happening with prices right now and what it may mean for your financial plan.

What Happened This Month

On September 16, the Federal Reserve raised interest rates for the first time since 2023. The move was a quarter point, and the vote was unanimous, with most officials expecting one more increase before the end of the year.

A year ago, nearly everyone expected rates to come down in 2026. Instead, they have moved higher as the Fed continues responding to inflation that remains above its longer-term target.

Energy has also played a significant role this month. Oil prices jumped after attacks shut down a major pipeline in Saudi Arabia, with repairs expected to take weeks, and gasoline and diesel prices rose along with them.

Housing tells a somewhat different story. Home prices are still rising, but more slowly than many other prices. The national index is up about 1.5% over the past year, while inflation has run about two points higher. Put another way, the typical home has gained value in dollars while losing a little ground in what those dollars can buy, a pattern that has now continued for 13 months.

Two Inflation Numbers

When you hear that “inflation is 3.4%,” that is the headline number, which includes everything from gasoline and groceries to housing and healthcare.

Economists also pay attention to a second measure that excludes food and energy. This year, that number is 2.4%. While leaving out two categories that people spend money on every day can seem counterintuitive, there is a reason for it: energy prices tend to move sharply in both directions, which can make it harder to see the slower-moving inflation trends beneath the surface.

Usually, those two inflation measures sit relatively close together. This year, they are a full point apart, and much of that difference can be traced to energy. Gas is up 27% from a year ago, while energy overall is up 16%. At the same time, rent and housing costs, which account for a significant share of most household budgets, have been slowing.

So this is less a story about every price rising at the same pace and more a story about a few categories, particularly energy, moving much faster than others. Because gasoline is something many of us purchase regularly, those increases are especially noticeable, making a 3.4% inflation rate feel much higher in everyday life.

The Fed chair made a useful distinction following the rate decision. The Federal Reserve cannot directly control the price of oil, but it can monitor whether an energy shock begins to spread to the costs of other goods and services. That is one reason economists watch inflation excluding food and energy: it helps show whether those broader pressures are beginning to take hold.

So far, that does not appear to be happening in the same way across the rest of the economy.

What This Means for Your Plan

Your financial plan already has an inflation assumption built into it. Ours uses 2.5% a year.

That number is not meant to predict what inflation will be next year, or even the year after that. It is a long-term assumption applied across the twenty or thirty years a financial plan may cover. Along the way, there will naturally be years when inflation runs above 2.5% and others when it falls below it.

This happens to be one of the higher years.

When inflation runs above the long-term assumption, there are a few areas of the plan worth paying attention to.

Your Spending

The plan increases expenses by 2.5% each year. If inflation runs at 3.4%, actual spending may move a little faster than that assumption in the short term. One year of higher inflation does not necessarily change the plan, but several years in a row would be something we would want to account for.

Your Social Security

Social Security benefits receive an automatic cost-of-living adjustment each year based on inflation. Estimates for next year’s increase are currently running around 3.5%, which would be the largest adjustment in three years. The official figure comes out in October, so part of a retiree’s income adjusts to higher prices automatically, even if that adjustment happens with a lag.

Your Safe Money 

For much of the last fifteen years, cash and bonds paid less than inflation. Today, a Treasury bond yields well above 4% while inflation runs in the low threes, creating a different environment for the conservative portion of a portfolio than investors experienced for much of the past decade.

Planning for Changing Conditions

Higher interest rates can have two effects at the same time. They may cause the value of some bonds you already own to dip temporarily, but they also mean new bonds can pay more interest than they have in recent years. So while a statement may look a little different in the short term, higher rates can also create better income opportunities over time.

This is one reason we revisit your plan regularly. We update it with what you are actually spending, your current income, and changes in the broader environment, so the plan continues to reflect real life rather than a fixed set of assumptions.

What We’re Watching

Energy is one of the first things we are watching. If the pipeline remains offline for several weeks, higher energy costs could continue to show up in September prices. Those figures will be reported in mid-October and will also play a role in determining next year’s Social Security adjustment.

We are also paying attention to whether higher prices remain mostly concentrated in energy or begin showing up more broadly across the economy. So far, the steadier measures of inflation have continued to move in a more encouraging direction, which helps put the higher headline number in perspective.

And, of course, we will continue to watch the Federal Reserve. The important question is not simply whether rates move again, but what the Fed is seeing in the economy and how that may shape the months ahead.

These signals will help us understand whether what we are seeing today is temporary or part of a longer-term shift. For now, we will continue to follow the data, put new developments in context, and keep you informed about what matters, while staying focused on how those changes connect back to your life, your family, and the plan we have built together.

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Market data and figures are current as of September 16, 2026.