The Consumer Price Index (CPI) rose 0.2% month-on-month (m/m) in September, a tenth of a percentage point (pp) above the consensus forecast. On a twelve-month basis, CPI fell to 2.4% (from 2.5% in August).
- Energy prices (-1.9% m/m) were again a drag on headline inflation, almost entirely driven by a pullback in gasoline prices (-4.0% m/m). Conversely, food prices sharply accelerated last month, rising 0.4% m/m – its strongest monthly gain since January.
Excluding food and energy, core prices rose 0.3% m/m, as it did the preceding month. The twelve-month change ticked up 0.1pp to 3.3%, while the three-month annualized rate rose to 3.1% (from 2.1% in August).
Price growth on core services rose a “soft” 0.4% m/m (0.38% m/m unrounded), in line with August’s gain.
- Primary shelter costs were up 0.3% m/m, following a gain of 0.5% m/m in August. The deceleration was driven by a slowing in both Owners’ Equivalent Rent (to 0.4% m/m from an outsized gain of 0.5% m/m in August) and Rent of Primary Residence (0.3% from 0.4% m/m). Over the last twelve months, primary shelter costs are up 5.1%, well off their 2023 highs of over 8% but still a few percentage points above the pre-pandemic pace of growth when inflation was running closer to 2%.
- Non-housing services inflation (aka “supercore”) rose by 0.4% m/m, also matching last month’s gain. The continued strength was primarily driven by another strong advance in vehicle insurance (+1.2% m/m), airline fares (+3.2% m/m) and medical costs (+0.7% m/m).
Core goods prices ticked higher by 0.2% m/m, with higher apparel (+1.1% m/m) and new (+0.2% m/m) and used (+0.3% m/m) vehicle prices all contributing to September’s uptick.
Key Implications
This morning’s CPI report showed little progress on the inflation front in September. Even with some cooling in shelter costs, service prices remained elevated, while core goods added to overall inflationary pressures (a first in seven months), pushing the three-month annualized rate up to 3.1% – the firmest pace of price growth since May.
With progress on the inflation front stalling and last week’s employment report still showing a relatively sturdy labor market, the Fed is likely to slow the pace of rate cuts next month and deliver two additional quarter-point cuts by year-end. While further cuts are in the pipeline for 2025, the Fed will remain data dependent as they continue to adjust the policy rate lower.
, pushing the three-month annualized rate up to 3.1% – the firmest pace of price growth since May.){kind=link}