Consumer prices in the United States kept rising in September to 3 percent on an annual basis and the highest inflation rate since January, as per figures published Friday by the Bureau of Labor Statistics. The report, which was nine days late because of the current government shutdown, indicates that inflation continues to stubbornly stay above the Federal Reserve’s 2 percent target with policymakers set to make a call on whether to reduce interest rates once more at their October meeting.
Expected higher but lower than predictions
The Consumer Price Index increased 0.3 percent month on month during September, marginally lower than the 0.4 percent increase in August and lower than the 0.4 percent that economists predicted. On a yearly basis, the 3 percent rate of inflation is a slight increase from 2.9 percent in August but below analysts’ predictions of 3.1 percent.
Core inflation, excluding food and energy prices, which are volatile, and as a superior measure of underlying price trends, rose 3 percent from a year earlier in September, up from 3.1 percent in the prior month. Core prices in the month only grew 0.2 percent, decelerating from August’s rise of 0.3 percent and missing the forecasted 0.3 percent rise.
The September data collection was completed before the government shutdown began on October 1, but furloughed workers were specifically recalled by the Bureau of Labor Statistics to release this report, which is employed to calculate the 2026 cost-of-living adjustment for 75 million Social Security beneficiaries.
Gasoline and energy drive price increases
Energy costs were the primary driver of September’s inflation increase, as gasoline rose 4.1 percent for the month and contributed more to overall price increases than any other item. The gas index beat shelter as the largest monthly inflation contributor, even though fuel remained 0.5 percent lower than it was one year earlier.
Total energy costs advanced 1.5 percent during September, with electricity declining 0.5 percent and natural gas 1.2 percent, partially reversing the gasoline surge. Food costs gained 0.2 percent during the month, decelerating from August’s 0.5 percent gain, with grocery prices increasing 0.3 percent.
Individual food categories that showed significant price jumps were bakery items, up 5.7 percent, lunch meats up 4.2 percent, and potatoes up 2.6 percent. Eggs provided a respite by declining 7.4 percent in September, even though they are still more than 27 percent higher than last year’s level.
Tariffs continue exerting upward pressure on prices
President Donald Trump’s blanket tariffs imposed throughout 2025 have also significantly added to current inflation, albeit the impact of all of them has been diminished as companies pass through some of the costs and work off pre-tariff stock. St. Louis Federal Reserve analysis indicates that tariffs accounted for around 0.5 percentage points of headline inflation during the June to August quarter and represent 10.9 percent of inflation per year measured through August.
Product categories most exposed to international trade have experienced significant price increases, with durable commodities such as autos, electronics, and household furnishings posting particularly strong gains in line with tariff timing rollouts. Household supplies and furnishings posted a 3 percent gain on the year in September, while clothing prices increased 0.7 percent on a month-over-month basis, potentially picking up tariff related pressures.
Goldman Sachs research indicates that firms are imposing about 55 percent of the cost of tariffs to consumers in terms of increased prices and covering the rest in the form of lower profit margins. There are warning signs from some economists that companies will move additional costs to consumers over the next several months if tariffs seem permanent as opposed to temporary.
Housing costs continue to stay high
Shelter costs, which account for more than 40 percent of core inflation, rose 0.2 percent in September following a 0.4 percent increase last month. Shelter inflation a year ago was flat at 3.6 percent, the lowest since October 2021 but yet well above pre-pandemic levels.
The owners’ equivalent rent, which estimates the hypothetical rent of owner occupied properties, rose only 0.1 percent in September, the lowest monthly gain since 2021. The rent index of the primary residence rose 0.2 percent for the month, with the year-over-year rate at 3.5 percent.
Housing costs continue to be the largest obstacle to the return of inflation to the Federal Reserve’s 2 percent target, with consistent advancement in this direction needed to achieve the central bank’s objective. The persistent growth of services inflation, and particularly its housing component, is a critical concern that prevents inflation from fully normalizing.
Fed ready to cut rates even as It alarming climbs
The September inflation figures are in line with market expectations that the Federal Reserve will decrease interest rates by 0.25 percentage points at its October 28 to 29 meeting as detailed in this article, When is the next Fed meeting — and what could it mean for interest rates? the second successive cut after the central bank reduced rates in September for the first time since December 2024 last year. Markets now assign a 98 percent likelihood to a quarter point cut sometime later this month.
Fed officials have signaled that rising fears about deteriorating labor markets trump lingering inflation concerns in their weighing. Last month, Chair Jerome Powell stated that risks of downside to jobs have risen in the central bank’s assessment of the balance of risks.
Governor Christopher Waller indicated to lower the rate again in October since there was a mixed batch of job market readings, saying that the labor market has been issuing warning signs and that policymakers would be ready to act if confirmed by upcoming data. The Federal Reserve reduced its policy rate to the 4.00 to 4.25 percent level in September, and yet another quarter point reduction would place rates at 3.75 to 4.00 percent, a trough not experienced since December 2022.
Data vacuum complicates Fed decision making
The fourth week of the government shutdown has suspended the release of vital economic information that would otherwise guide Federal Reserve policy decisions. The Bureau of Labor Statistics temporarily closed down all operations with the exception of the report for September for Consumer Price Index, so the October job report and all subsequent data collection remain on hold.
White House Press Secretary Karoline Leavitt stated “the October inflation came in below market expectations in September thanks to President Trump’s economic agenda.
This is good news for American families, and it’s a shame the Democrats are using them as ‘leverage’ to fund health care for illegal aliens. Democrats choosing to keep the government closed will likely result in no October inflation report, which will leave businesses, markets, families, and the Federal Reserve in disarray.” Fed Chair Powell acknowledged the absence of information creates challenges but stated his opinion that based on information currently available, the picture for the employment and inflation situation did not appear to change much since the September meeting.
Evercore analysts noted that the shutdown adds to the credibility of what was already a strong chance of an October rate cut, as possible damage from the pause in funding will dominate concerns about inflation. Bank of America analysts had noted that if strong September jobs data are still absent, then Powell will likely endorse another risk management cut to offset risk of a longer shutdown.
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