The U.S. Consumer Price Index (CPI) rose by 0.3 % in September on a month-on-month basis and by 3% year-on-year, a shade below the consensus forecast of 3.1% and 0.4% respectively. Annual “core” inflation (excluding food and energy) also came in at 3%, down from 3.1% in August and again just 0.1 point under the estimate.
While the headline figure signals inflation remains elevated compared to the Federal Reserve’s (Fed) 2% target, the slightly softer outcome than expected gives some breathing room for markets and policymakers. Importantly, the increase was primarily driven by a 4.1% jump in gasoline prices in September, whereas a key component of service cost inflation (owners’ equivalent rent) rose just 0.1%, its smallest monthly gain since early 2021.
Data was published by the Bureau of Labor Statistics (BLS) earlier this Friday, despite delays related to the U.S. government shutdown. Although inflation is still high, the moderation in core components suggests inflationary pressure might be stabilizing, but not yet fully under control. This balance is critical for the Fed, given that it recently cut rates by 25 basis points to 4-4.25% and signalled more easing ahead.
The implications are multi-fold. On the one hand, households still face higher prices, especially where energy and imported goods are concerned (since tariffs remain a factor). On the other, the weaker-than-expected inflation print helps validate the Fed’s decision to move into rate-cut territory. But the fact that inflation remains at 3% means the economy may have shifted into a “higher for longer” inflation regime, raising questions over whether the 2% target still anchors expectations.
