The US government recorded a budget deficit of $404 billion in October, the first month of fiscal year 2027, marking a record shortfall for the month, according to figures released by the US Treasury Department.

The deficit was $120 billion, or 42%, higher than in October 2025, as government revenues declined and spending rose sharply, the department announced on Thursday.

The record October deficit presents another fiscal setback for Treasury Secretary Scott Bessent, following the department's announcement that the US budget deficit reached approximately $2 trillion in fiscal year 2026, the largest annual shortfall recorded by the United States in five years.

Bessent had set a target of reducing the deficit to 3% of US gross domestic product (GDP). However, the fiscal year 2026 deficit was estimated at approximately 6.2% of GDP, compared with 5.8% in fiscal year 2025.

Revenues decline by $35 billion

US revenues fell by $35 billion, or 9%, in October 2026, reaching $369 billion.

The decline was partly attributed to a 39% drop in net customs revenue, which fell from $31.3 billion in October 2025 to $19.2 billion, after revenues from US President Donald Trump's global tariffs peaked during the same period last year.

Revenue from individual income taxes not withheld from wages also declined by $29 billion, or 36%, to $51 billion compared with October 2025. The previous year's figures had been boosted by delayed tax payments following the extension of filing deadlines for California residents affected by wildfires in early 2025.

The Treasury Department said that after calendar adjustments related to benefit payments for November being brought forward into October in both fiscal years, the deficit would have stood at $285 billion, up $94 billion, or 49%, from the same period last year.

Agricultural and military spending, debt interest drive expenditure higher

Meanwhile, government spending reached a record $773 billion for October, increasing by $84 billion, or 12%, compared with the same month last year.

The increase was partly driven by a $14 billion, or 80%, rise in US Department of Agriculture spending, reflecting agricultural support and relief payments. Military spending also increased by $28 billion, or 30%.

The rise in military expenditure was attributed to an October payment to military trust funds that had been postponed due to last year's US government shutdown, alongside higher spending on operations, maintenance, and military procurement.

Gross interest payments on federal debt also increased by $11 billion, or 11%, compared with October 2025, reaching $115 billion.

The US fiscal year begins on October 1 and ends on September 30 of the following year.

US inflation accelerates as gasoline prices surge, raising rate-hike concerns

Higher fuel costs pushed US inflation upward in September, while underlying price pressures also exceeded expectations, according to Labor Department figures released Wednesday. The latest data have renewed concerns over a possible Federal Reserve interest-rate increase later this month, Reuters reported.

Consumer prices rose 0.6% from August, when the increase stood at 0.4%. The annual inflation rate reached 3.7%, compared with 3.4% in the previous month. Both figures were in line with economists’ forecasts for the monthly and yearly readings, respectively.

Energy costs accounted for much of the increase. Gasoline prices rose 9.1% during the month, contributing more than half of the overall monthly inflation increase as the US war on Iran drove energy prices higher. Diesel prices have also reached record levels, raising concerns that higher transport and distribution costs will eventually push up food prices.

Food prices showed little overall movement. Grocery costs declined 0.1% in September but remained 1.8% above their level a year earlier. Beef prices fell 1.0%, while dairy products dropped 0.9%. Non-alcoholic beverages rose 0.9%, and fruit and vegetable prices increased 0.5%.

Underlying inflation exceeds forecasts

Price increases remained elevated even after food and energy were excluded from the calculation. Core CPI rose 0.3% in September, exceeding the 0.2% increase economists had anticipated. Shelter costs, including hotel accommodation, advanced 0.4%, while owners’ equivalent rent, a measure of the cost of housing for homeowners, increased 0.3%.

Other categories also recorded gains. Used vehicle prices rose 0.7%, airfares increased 1.2% amid higher jet fuel costs, and apparel prices edged up 0.3%. Annual core inflation accelerated to 2.6% from 2.4% in August.

The Federal Reserve measures its 2% inflation objective using the Personal Consumption Expenditures index rather than CPI. That gauge’s core measure stood at 3.0% in August.