In a report released by the Bureau of Labor Statistics (BLS) on Friday, it was revealed that prices for a range of goods and services increased less than anticipated in September. This report is noteworthy as it is the only official economic data made available during the ongoing government shutdown. The consumer price index (CPI) reported a monthly increase of 0.3%, resulting in an annual inflation rate of 3%. Economists surveyed by Dow Jones had projected increases of 0.4% for the month and an annual inflation rate of 3.1%.
The annual inflation rate noted a slight uptick, rising by 0.1 percentage points from August. When food and energy prices are excluded, the core CPI showed a modest monthly gain of 0.2%, aligning with an annual rate of 3%. These figures fell short of expectations, which had estimated gains of 0.3% and 3.1%, respectively. Notably, the core CPI had recorded monthly gains of 0.3% in both July and August.
A substantial contributor to the inflation report was a 4.1% surge in gasoline prices, overshadowing a backdrop of relatively muted inflationary pressures. Food prices experienced a slight increase of 0.2%, while overall commodity prices rose by 0.5%. On an annual basis, energy prices increased by 2.8%, and food prices went up by 3.1%. Shelter costs, which account for about one-third of the CPI weighting, rose by 0.2% and were up 3.6% compared to the previous year. Additionally, service costs excluding shelter also saw a 0.2% increase.
The report prompted stock market futures to gain traction, while Treasury yields experienced a slight decline. This release offers a crucial insight into the current state of the U.S. economy amidst a suspension of other data releases. The BLS published this information specifically because the Social Security Administration relies on it as a benchmark for cost-of-living adjustments (COLA) in benefit checks. Typically, the CPI was scheduled for release on October 15, but the ongoing fiscal impasse in Washington, D.C. has led to a halt in all data compilation and releases.
Moreover, the CPI report serves as the final significant data point the Federal Reserve will consider before making its interest rate decision next week. The Fed has been aiming for a 2% inflation goal, a target the headline measure last fell below in February 2021. Market analysts are increasingly anticipating that the central bank will cut its benchmark overnight borrowing rate by 0.25% percentage points from the current target range of 4%-4.25%, with expectations of another cut in December.
Despite these optimistic projections, uncertainty looms as concerns persist regarding potential inflationary pressures stemming from President Donald Trump's tariffs. Additionally, Fed policymakers remain cautious, recognizing that a slowdown in hiring this year could have broader implications, even though layoffs remain low. Chairman Jerome Powell and his colleagues have adopted a measured approach regarding the pace of rate cuts, weighing the challenges posed by inflation against the weaknesses in the labor market.
In contrast, President Trump has maintained that inflation is no longer a pressing issue and has urged the Fed to adopt a more aggressive stance on interest rate cuts. This situation continues to unfold, and readers are encouraged to refresh for updates as new developments emerge.
