A closely watched report on U.S. inflation showed that consumer price increases were lower year-over-year in September, but “core prices” remained unchanged, according to the latest Bureau of Labor Statistics data released Thursday morning.
The consumer price index (CPI) rose 2.4% in September from the previous year, a slight slowdown from the annual price increase of 2.5% in August. The annual increase, the lowest annual headline gain since February 2021, came in higher than economists expected of an annual increase of 2.3%.
The index rose 0.2% last month, matching August’s gain and also higher than economists’ estimates of a 0.1% increase.
On a ‘core’ basis, which excludes the more volatile costs of food and gas, prices rose 0.3% in September from the previous month, stronger than the 0.2% rebound that economists had expected , and by 3.3% compared to last year. Core prices rose 0.3% month-on-month and 3.2% year-on-year in August.
Inflation, while moderate, remains above the Federal Reserve’s 2% annualized target.
But the Federal Reserve has recently turned its attention to the state of the labor market, which has proven surprisingly resilient in the face of high interest rates.
Bureau of Labor Statistics data released Friday showed the labor market added 254,000 jobs in September, more than the 150,000 economists expected, while the unemployment rate fell from 4.2% to 4.1%.
The strong report changed expectations about the path forward in interest rates, with traders now pricing in a smaller 25 basis point cut in November rather than another massive 50 basis point cut.
Federal Reserve minutes released Wednesday showed that while a “substantial majority” of officials favored a larger cut at the September meeting, “some” wanted the smaller option, viewing a revival in inflation as main concern.
Immediately after Thursday’s inflation data, markets priced in a more than 80% chance that the central bank would cut by 25 basis points in November, compared to just 50% a month ago, according to the CME FedWatch Tool.
Sticky accommodation, food prices
Notable signals from the inflation figures include the shelter index, which rose 4.9% on an unadjusted annual basis, a slowdown from the 5.2% increase in August. The index rose 0.2% month-on-month, after rising 0.5% in August.
Shelter, together with the food index, which rose 0.4% month-on-month in September, contributed more than 75% to the monthly increase in headline inflation.
According to economists, the persistent inflation is largely attributed to higher core inflation rates.
Read more: What is inflation and how does it affect you?
This trend continued last month, with the index for rent and owners’ equivalent rent (OER) increasing by 0.3% between August and September. Owner’s equivalent rent is the hypothetical rent a homeowner would pay for the same property.
The index for nights spent away from home fell 1.9% in September, after rising 1.8% in August.
Meanwhile, the energy index fell 1.9% in September, after falling 0.8% in August, when gas prices fell a significant 4.1% last month. On an annual basis, the energy index fell by 6.8%.
The food index rose 2.3% in September last year, while food prices rose 0.4% monthly – proving to be a tricky category for inflation. The index for food at home rose 0.4% in September after prices remained stable from July to August, while food away from home rose 0.3%.
Other indexes with notable increases over the past year include motor vehicle insurance (+16.3%), medical care (+3.3%), personal care (+2.5%) and apparel (+1.8%).
Indexes for education, home furnishings and activities, personal care, used cars and trucks and new vehicles also rose in September.
Alexandra Canal is a senior reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and email her at alexandra.canal@yahoofinance.com.
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