WASHINGTON (Reuters) – U.S. consumer prices rose slightly more than expected in September, but the annual increase in inflation was the smallest in more than three-and-a-half years, potentially keeping the Federal Reserve on track to cut interest rates again next month.
The consumer price index rose 0.2% last month, after rising 0.2% in August, the Labor Department’s Bureau of Labor Statistics said Thursday. In the twelve months to September, the CPI rose by 2.4%. That was the smallest year-on-year increase since February 2021 and followed a 2.5% increase in August.
Economists polled by Reuters had forecast the CPI to rise 0.1% and 2.3% on an annual basis. The annual increase in inflation has slowed from a peak of 9.1% in June 2022.
Together with a significant moderation in the US central bank’s inflation measures towards its 2% target, this allowed the Fed to shift focus to the labor market and implement an unusually large interest rate cut of 50 basis points in September.
Minutes of that meeting released Wednesday showed that a “substantial majority” of policymakers supported the start of an era of simpler monetary policy, but there appeared to be even broader agreement that the first step would not require the Fed to a certain rate of interest rate cuts in the future.
The first rate cut since 2020 lowered the central bank’s policy rate to the range of 4.75%-5.00%. The Fed raised rates by 525 basis points in 2022 and 2023.
However, the resilience of the labor market and solid consumer spending have forced investors to abandon hopes of another half-percentage-point interest rate cut next month.
The economy added the most jobs in six months in September and the unemployment rate fell to 4.1% from 4.2% in August. Revisions to last month’s national accounts data, covering 2019 through the second quarter of this year, also showed the economy was in much better shape than previously estimated.
There are also some weaknesses, especially rents, which are slowing the pace of cooling in underlying inflation.
Excluding volatile food and energy components, the CPI rose 0.3% in September, after rising 0.3% in August. In the twelve months to September, the so-called core CPI rose by 3.3%. That followed a 3.2% gain in August.
Early Thursday, financial markets saw a roughly 76% probability of a 25 basis point rate cut during the Fed’s Nov. 6-7 policy meeting, according to CME Group’s FedWatch Tool. The chance that interest rates would remain unchanged was about 24%.
(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama)
