A close report on US inflation found that consumer price inflation fell on an annual basis during the month of September, but “core” prices remained tight. latest data The Bureau of Labor Statistics released the figures Thursday morning.
The Consumer Price Index (CPI) rose 2.4% in September compared to the same period last year, a slight slowdown compared to August’s annual inflation rate of 2.5%. The annual increase, the lowest annual headline figure since February 2021, was higher than the economist’s annual increase of 2.3%.
The index rose 0.2% from the previous month, matching August’s gains and better than economists’ estimates of a 0.1% rise.
On a “core” basis, which strips out the volatile costs of food and gas, prices rose 0.3% in September from the previous month, stronger than the 0.2% rise economists had expected and up 3.3% from last year. Core prices rose 0.3% month-on-month and 3.2% on an annualized basis in August.
Inflation, while moderating, remained above the Fed’s annual target of 2%.
But the Fed has recently turned its attention to the state of the labor market, which has remained surprisingly resilient despite high interest rates.
Read more: Jobs, Inflation, and the Federal Reserve: How They Are Related
Bureau of Labor Statistics data released Friday showed the labor market added 254,000 jobs in September, more than the 150,000 economists expected, and the unemployment rate fell to 4.1% from 4.2%.
The strong report has shifted expectations about the future direction of interest rates, with traders now pricing in a smaller 25 basis point cut in November instead of another 50 basis point cut.
Federal Reserve minutes released Wednesday show that a “majority” of officials at the September meeting favored larger cuts, but “some” wanted a smaller option, citing a resurgence in inflation as a major concern.
In addition to the inflation report, new jobless claims also rose hotter than expected, rising to their highest level since August 2023.
After the data was released, markets assessed the probability of the central bank cutting in November at more than 80%. This compares to just 50% a month ago. According to the CME FedWatch tool.
“If inflation data continues to suggest prices are generally rising as the labor market cools, the Fed’s next meeting will undoubtedly bring more heated debate over which of the Fed’s obligations will take precedence,” said Quincy Crosby, chief global strategist at LPL. “It will involve discussions,” he said. Finance, I wrote on Thursday.
“Today’s report is sure to spark concerns that a mild form of stagflation is beginning.”
The shelter relaxes and the food remains sticky.
Notable callouts in the inflation report include the shelter index, which rose 4.9% on an unadjusted annual basis, down from a 5.2% increase in August. The index rose 0.2% compared to the previous month after rising 0.5% in August.
Shelter-in-place, along with the food index rising 0.4% month-on-month in September, contributed to more than 75% of the monthly increase in overall inflation.
According to economists, persistent shelter inflation has been largely blamed for rising core inflation levels. But the easing in August is an encouraging sign.
“The September CPI report contains both good and bad news for the Fed,” Eugenio Alemán, chief economist at Raymond James, said of the report. “The good news is that shelter costs have slowed…but it has shown that there is still a lot of upside risk to inflation going forward.”
Read more: What is inflation and how does it affect you?
Rent and Owner Equivalent Rent (OER) indices each rose 0.3% from August to September. Owner equivalent rent is the hypothetical rent a homeowner would pay for the same property.
The non-residential lodging index fell 1.9% in September after rising 1.8% in August.
Meanwhile, the energy index fell 0.8% in August and fell 1.9% in September as gasoline prices fell sharply by 4.1% last month. The annual average energy index fell 6.8%.
In September, the food index rose 2.3% year-on-year, and food prices rose 0.4% month-on-month, proving to be a steady category for inflation. The index for food eaten at home rose 0.4% in September after prices were flat from July to August, while food eaten at home rose 0.3%.
Other indices with notable increases over the past year include auto insurance (+16.3%), healthcare (+3.3%), personal care (+2.5%), and clothing (+1.8%).
The Education, Furniture and Operations, Personal Care, Used Cars and Trucks, and New Vehicle indices also rose in September.
alexandra canal He is a senior reporter at Yahoo Finance. Follow her on @allie_canal, linkedin, Email alexandra.canal@yahoofinance.com.
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