What to expect from Friday’s inflation report

The Fed’s preferred measure of inflation will likely remain volatile in September.

A report due on Friday is expected to show that inflation, as measured by the personal consumption expenditures index, rose 2.8% in the 12 months to September, up from 2.7% in August according to estimates from RBC Bank among others. This would be the highest since April 2024. “Core” inflation, which excludes volatile food and energy prices, is likely to rise by 2.9% during the year, the same level it was in August.

If the report matches expectations, it will mark 55 months since core personal consumption expenditures inflation — the price measure favored by Fed officials — was above the Fed’s target at an annual rate of 2%.

Inflation rose during the pandemic, peaking in 2022 and then falling toward the Fed’s target. But tariffs imposed by President Donald Trump have sent prices rising again this year, as traders pass on the cost of import taxes to consumers.

Friday’s report was initially scheduled to be released in October, but was postponed due to the government shutdown. If that matches expectations, PCE inflation will have the same annual increase as the widely watched CPI for September. The two price measures often move in the same direction, although they often show slightly different inflation rates.

Forecasters expect inflation to remain above target for months, if not years, to come. For example, economists at Bank of America expect core personal consumption expenditures inflation to remain above 3% through the third quarter of 2026 and above 2% through 2027, according to a commentary published Wednesday.

However, stubborn inflation may not prevent the Federal Reserve from cutting its benchmark interest rate at its meeting next week. Although Fed officials have kept interest rates high to discourage borrowing and cool inflation, they also face pressure to lower interest rates to encourage hiring and help an increasingly fragile labor market. The Fed has cut its benchmark interest rate by a quarter of a percentage point at each of its last two meetings, and is widely expected to do so again.

Fed officials said they see risks to both halves of its dual mandate from Congress to keep inflation low and employment rates high, and that the two goals are pulling interest rates in opposite directions. The recent slowdown in job growth has given interest rate cuts the upper hand in the discussion.