Inflation Report: CPI rose 3% in September, just below forecast

The one-year inflation rate rose to 3.0% in September, returning to its January level.

Economists had expected last month’s interest rate to be 3.1% after a slight rise to 2.9% in August.

The core CPI, which excludes volatile food and energy prices, also rose 3% on the year in September. It was also forecast to come in at 3.1%, which would have matched the July and August rates.

Core CPI rose 0.2% in the month between August and September, below forecasts of 0.3% which would have matched the July and August rates.

The CPI rose 0.3% in the month between August and September, below forecasts of 0.4% and the previous rate.

The Bureau of Labor Statistics was supposed to release the September Consumer Price Index report on October 15, but the release was delayed when the government shut down on October 1. The shutdown, now the second longest in U.S. history, has affected the pay and employment of many federal workers and the operations of some agencies.

“The late September CPI release showed slight stubbornness, mainly driven by goods inflation, with services inflation showing signs of moderation,” said Ryan Weldon, chief investment officer and portfolio manager at IFM Investors.

BLS said gas prices were the main factor in the monthly increase. This increased by 4.1% over the month, well above the previous increase of 1.9%. On the other hand, the gas index fell by 0.5% over the year.

The food products index increased by 3.1% year-on-year. It increased by 0.2% over the month, less than the previous increase of 0.5%. Beef and veal prices increased by 1.2% over the month but by 14.7% over the year, the largest increase over one year since March 2022.

The BLS employment report was not released earlier this month due to the shutdown and has not been rescheduled. The Fed will meet Oct. 28-29 to discuss rates, and given the lack of official data, it could use private data releases and past employment reports to understand how the labor market is doing.

“In our view, the Fed is increasingly focused on supporting the labor market, especially as inflation risks appear transitory and tariff-related,” said a note from global financial services firm Raymond James ahead of the latest CPI report.

Businesses large and small are considering whether to raise prices, cut staff and make other business changes due to tariffs and economic uncertainty.

Although the full picture of the labor market remains unclear, the current CPI report at least gives Fed members some insight into prices. The Social Security Administration will also be able to use the new inflation figures to calculate and announce the annual cost-of-living adjustment to benefits.

The Fed cut rates for the first time this year in September, providing some relief to Americans’ wallets, and is expected to cut rates again. CME FedWatch showed an overwhelming probability of a 25 basis point decline next week and a slim chance that the range remains stable.

With inflation lower than expected and a sluggish labor market, the Fed will likely cut rates again.

“This will be presented as an insurance cut, with the expectation that by December the shutdown will be over and the Fed will have a clearer view of employment,” said Olu Sonola, head of U.S. economic research at Fitch Ratings.

Median inflation expectations for a year ahead rose for the third straight time according to a New York Fed survey, from 3.2% in August to 3.4% in September.