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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, decelerating.
- The decline in core inflation was unexpected and leaves the Federal Reserve on track to cut interest rates next week, putting the fight against inflation on the back burner in favor of helping stabilize the labor market.
A very late government report confirmed what you probably already knew by looking at your grocery receipts: Inflation remained high in September.
Consumer prices rose 2.8% in the 12 months through September according to its personal consumption expenditures index, compared with 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 scheduled to be released in October, but was postponed due to the government shutdown. “Core” prices, which exclude food and energy, rose 2.8% over the year, down from the 2.9% annual increase in August. This was the first decline in core inflation since April, and was less than the 2.9% rise that analysts had expected.
What does this mean for the economy
Inflation remains above the Fed’s target, but the drop 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 rate cut by the Federal Reserve next week, which was already widely expected.
The report is particularly important because the Fed uses core PCE inflation as a benchmark to measure whether inflation is running at its target of a 2% annual rate — which has not happened since 2021.
However, Federal Reserve officials are widely expected to cut the central bank’s key interest rate next week, lowering borrowing costs to stabilize a faltering labor market and putting the battle against inflation on the back burner. A slowdown in core inflation could ease some concerns among Fed officials about tariffs stoking inflation, and help fuel next week’s rate cut.
The data “will help them feel more confident about the third straight cut,” Ali Jafari, an economist at CIBC Bank, wrote in a commentary.
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