Headline CPI rose 0.6% month-on-month, the largest increase since April, driving the annual rate to 3.7%; core CPI also beat expectations at 2.6% year-on-year.

US headline consumer prices rose 0.6% in September, the largest monthly increase since April, pushing the year-on-year rate to 3.7% from 3.4% in August—the fastest annual pace in five months. Energy prices were the primary driver, with core CPI also coming in hotter than expected, rising 0.3% month-on-month versus a 0.2% consensus.

Core inflation was led higher by recreation, used vehicles, education and airline fares, while food prices were contained. The report caps a week in which producer and import prices also surprised to the upside. With core CPI still clearly above the Fed's 2% target, the investor question has shifted from whether the Fed will hike again to how many more increases may be needed. The September jobs report was notably softer, with nonfarm payrolls up just 29k versus 90k expected and the unemployment rate at 4.2%.