CPI Details Give Green Light to Further Fed Rate Cuts

Analysis by Yelena Shulyatyeva, Senior US Economist

Trusted Insights for What’s Ahead^®

• The September CPI report solidified expectations for continued Fed policy loosening. A cooler-than-expected reading on inflation not only strengthened our projections for an interest rate cut at the October FOMC meeting but also provided a clearer path for the Fed to keep cutting rates ahead.
  
  
• Headline CPI inflation increased to 3.0% in September from 2.9% in August on a y/y basis. Meanwhile, Core CPI, which excludes food and energy, declined to 3.0% y/y from 3.1% prior.

• Rising goods inflation, particularly for necessities such as food and energy, and other items affected by tariffs, appears to have led to softer demand and, as a result, easing in price pressures elsewhere.
  
  
• The weakest monthly gain in rental prices since 2021, as reflected by owners’ equivalent rent (OER), highlighted the resumption of slowing shelter cost increases.
  
  
• Based on the CPI data, we preliminarily estimate a Headline PCE inflation print for September of 0.3% m/m. This would result in a pick-up in the y/y rate of Headline PCE to 2.8% in September, from 2.7% in August.
  
  
• Meanwhile, an estimated Core PCE inflation print for September of 0.2% m/m, would result in a decline in the y/y rate of Core PCE to 2.8% in September, from 2.9% in August. The PCE data will most likely be delayed because of the government shutdown.
  
  
• The White House announced there will most likely be no CPI data released for the month of October. It is not clear whether the data will be delayed or never collected and published.
  
  
• The release of the September report was made possible by the requirement to publish the data needed to calculate the Cost-of-Living Adjustment (COLA) for Social Security benefits. The details of the September report imply those benefits will increase by 2.8% in January.
  
  

Sources: Bureau of Labor Statistics, Haver Analytics, The Conference Board.

Report Highlights

In September, total CPI increased by less than expected, registering a 0.3% m/m rise vs 0.4%. The y/y rate increased to 3.0% from 2.9% prior, also below expectations for a 3.1% increase. Food and energy prices combined increased by 0.6% m/m, up from 0.5% prior, pushing the y/y pace of inflation to 3.0% in September from 2.2% in August.

Core CPI inflation picked up by 0.2% m/m, less than anticipated, pushing the y/y pace of core inflation down to 3.0% from 3.1% in the previous month. 

Core goods inflation continued rising. Indeed, prices for goods excluding food and energy increased by 1.5% on a y/y basis (similar to 1.5% prior), while core services inflation resumed its downward trend, falling to 3.5% y/y after staying at 3.6 % y/y five consecutive months (See Figure 1 above).

Easing Shelter Inflation

The September data showed a sharp decline in shelter inflation from the previous month. Indeed, rent of primary residence (PR) prices increased by 0.2% m/m, compared to 0.3% prior (to 3.4% y/y from 3.5% prior). Meanwhile, OER inflation fell to 0.1% m/m (the lowest reading since January 2021) vs 0.4% m/m prior (3.8% y/y vs 4.0% prior). OER is a special way of measuring how much homeowners would receive if they rented their property out. We expect this downward trend to continue.

Figure 2. Shelter Price Increases EaseSources: Bureau of Labor Statistics, Haver Analytics, The Conference Board, 2025

Elsewhere, on a m/m basis, prices for airline fares, recreation, household furnishings and operations, and apparel were all higher, while costs fell for motor vehicle insurance, used cars and trucks, and communication and financial services.  

Continued Tariffs Passthrough

Our analysis indicates that tariffs continued to trickle down into consumer inflation. In September, the y/y contribution of tariff-affected goods was about 0.30 pp of overall 3.0% inflation in September, slightly up from an August contribution of 0.25 pp to 2.9% overall inflation. 

Figure 3. Tariffs Continue to Trickle into Prices

Sources: Bureau of Labor Statistics, Haver Analytics, The Conference Board.

In all, September’s CPI data continued to indicate rising inflation, albeit at a slightly more modest pace now due to delays in tariff implementation.  Higher tariffs may still dampen consumer spending going forward as they take full effect. Nonetheless, downside risks to the labor market are intensifying and likely will prompt the Fed to continue cutting rates at the upcoming FOMC meeting next week.