:max_bytes(150000):strip_icc()/GettyImages-2249337233-7fe754cb1bb241a99df92cf2a5c8a961.jpg "The Fed’s Favorite Measure Of Inflation Stayed Hot In September")
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Key Takeaways
- Inflation in September showed a mixed trend with overall inflation accelerating and “core” inflation, which excludes food and energy, slowing down.
- The decrease in core inflation was unexpected and leaves the Federal Reserve on track to cut interest rates next week, putting the battle against inflation on the back burner in favor of helping stabilize the job market.
A seriously belated government report confirmed what you may already have known by looking at your grocery receipts: inflation stayed hot in September.
Consumer prices rose 2.8% over the 12 months through September as measured by the Personal Consumption Expenditures index, up from a 2.7% annual increase in August, the Bureau of Economic Analysis said Friday.
The rate was in line with forecasters’ expectations. The report was originally due to be released in October, but had been delayed by the government shutdown. “Core” prices, which exclude food and energy, rose at 2.8% over the year, down from a 2.9% annual increase in August. It was the first decrease in core inflation since April, and was lower than the 2.9% rise that forecasters had expected.
What This Means For The Economy
Inflation is still higher than the Federal Reserve’s target, but the downtick in annual inflation in September takes some pressure off the Fed to keep interest rates higher for longer. Friday’s inflation report could pave the way for a Fed rate cut next week, which was already widely expected.
The report is especially significant because the Federal Reserve uses PCE core inflation as its benchmark for whether inflation is running at its target of a 2% annual rate—it hasn’t been since 2021.
Nevertheless, Fed officials are widely expected to cut the central bank’s key interest rate next week, lowering borrowing costs to stabilize the faltering job market and putting the battle against inflation on the back burner. The deceleration in core inflation could ease some concerns among Fed officials about tariffs stoking inflation, and help cement a rate cut next week.
The data will “help them feel more confident about a third straight cut,” Ali Jaffery, an economist at CIBC, wrote in a commentary.
