A delayed snapshot of inflation in September came in softer than expected, potentially offering a path for the Federal Reserve to cut interest rates beyond next week’s meeting.
The core consumer price index, excluding the often volatile food and energy categories, increased 0.2% from August, according to Bureau of Labor Statistics data out Friday. That was the slowest pace in three months and restrained by the smallest increase in a key measure of housing costs since early 2021.
In the absence of other official reports during the government shutdown, the highly anticipated reading is a welcome surprise, particularly for several policymakers who are leery of cutting rates further. While the central bank was already widely expected to lower borrowing costs at next week’s meeting, investors are betting the report will help convince officials that they can do so again in December — especially if they don’t get another CPI report next month.
The September CPI report was initially scheduled to come out on Oct. 15 but was delayed because of the ongoing federal government shutdown. While most BLS operations have ceased since the Oct. 1 closure, the agency recalled staff to prepare this release so the Social Security Administration could tally its annual cost-of-living adjustment, which will total 2.8% for next year.
Economists generally weren’t concerned about the quality of the September inflation report because data collection was done before the government closed. But BLS hasn’t been able to collect new price information since then, and a White House-affiliated X account said Friday “there will likely NOT be an inflation release next month for the first time in history.”
“Once funding is restored, BLS will resume normal operations and notify the public of any changes to the news release schedule on the BLS release calendar,” a BLS spokesperson said in an emailed comment.
The S&P 500 opened higher while Treasury yields and the dollar pared earlier losses.
Goods prices, excluding food and energy commodities, rose at a slower pace in September, dragged down by cheaper prices for used cars. Categories that are more exposed to tariffs, including household furnishings and recreational goods, advanced. Apparel prices climbed at the fastest rate in a year.
Services prices excluding energy climbed 0.2%, in part reflecting a slower advance in airfares. Shelter prices were tame after rising by the most since the start of the year in the prior month. That included just a 0.1% increase in owners’ equivalent rent — which accounts for roughly a quarter of the overall CPI.
Household expenses were mixed. Gasoline costs jumped, while car insurance prices fell.
Separate data Friday showed US consumer sentiment dropped in October to a five-month low as worries about stubbornly high prices persisted.
While the inflationary impact of tariffs has been much less than many economists feared, several forecasters and policymakers are still wary that the duties will continue to put upward pressure on prices — which was evident in some private-sector gauges of inflation in September. President Donald Trump’s latest tariffs, aimed at household goods like kitchen cabinets and upholstered furniture, took effect earlier this month, and retailers like RH have warned of price increases to come.
Companies across the country have largely reported higher input costs due to tariffs in recent weeks, but the hit to consumers has been uneven, the Fed said in its latest Beige Book survey of regional business contacts. Procter & Gamble Co. is now expecting a more muted impact from tariffs and commodity prices, while O’Reilly Automotive Inc. said they adjusted selling prices to account for the increase in tariff-related costs.
“Businesses have so far shielded consumers from much of the increase in costs due to tariffs by absorbing them in margins, but further pass-through seems very likely in the months ahead,” Oliver Allen, senior US economist at Pantheon Macroeconomics, said in a note.
In a separate report, the Social Security Administration said on average, Social Security benefits will increase by $56 to $2,071 per month starting in January. Data from S&P Global released Friday showed US business activity expanded this month at the second-fastest pace of the year.
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