U.S. Consumer Prices Jump 3.0% in September Despite Cooler Food and Shelter Costs
September Inflation Report Shows Faster Year-Over-Year Growth, Cooler Than Expected Month-to-Month and Yearoveryear Core CPI, in Advance of Potential Federal Reserve Interest Rate Cut Next Week
The consumer price index (CPI) in the US has risen by 3.0% within the twelve months ending September, demonstrating a faster rate of increase compared to the preceding month but lower than anticipated for a year-over-year rise of 3.1%. These numbers are expected to gain attention from Federal Reserve policymakers deliberating on the possibility of an interest rate reduction next week.
In August, consumer prices stood at 2.9%, which was delayed by 10 days due to the ongoing federal government shutdown. Workers in charge of compiling the CPI were temporarily recalled as the Bureau of Labor Statistics is responsible for putting together the report prior to November 1, when the Social Security Administration makes annual adjustments based on rising cost-of-living expenses.
Month-over-month figures reveal a decrease to 0.3%, diverging from expected parity with August’s pace of 0.4%. It’s worth noting that these "core" CPI, analyzed by the Federal Reserve as an underlying index of inflation in the global economy, recorded an annual rise of 3% and 0.2% on a monthly basis, with anticipated year-over-year readings standing at 3.1% and month-to-month expectations pegging it to match August’s growth.
In their notes following the report release, analysts from Vital Knowledge mentioned that categories linked to US tariffs, such as clothing, footwear, home furnishings, toys, hotel accommodations, and ticket prices for flights, raised in September but showed some distinct trends. Shelter costs cooled down significantly, while individuals’ food expenses remained lower than before.
The impact of President Donald Trump’s trade policies has been keenly observed as the rate of tariffs has reached 18%, a level unseen in almost a century, with various businesses securing stock prior to enforcing these regulations and now potentially facing increased pressure to raise costs if necessary. However, given consumers’ potential aversion to price hikes, it remains unclear whether companies will adapt their pricing strategies accordingly.
A critical aspect for analysts is the long-term implications of these tariffs on inflation, described as an “extended process that will continue placing upward pressure on prices for multiple quarters.” Fed policymakers are also considering the length of the U.S. government shutdown and how it may restrict available data.
The upcoming interest rate decisions by the Federal Reserve in October and December have garnered attention from various stakeholders including market participants who see there a slight chance to see another 25 basis point cut in federal funds effective next week followed by another in mid-year December, as predicted in the CME FedWatch Tool, highlighting an all-but-ensured probability of an interest rate reduction for this year.
According to Stephen Brown, Deputy Chief North American Economist with Capital Economics, these numbers could provide "green light to cut" given their analysis that downside surprise on core CPI prices indicates a more likely move downwards due to the increased comfort among Fed officials that lowering may help bolster investment and employment.
