Headline and Core CPI Come in Below Expectations
The Bureau of Labor Statistics released its delayed Consumer Price Index (CPI) report on Friday, offering markets a long-awaited glimpse into the current inflation trend. Despite inflation levels remaining above the Federal Reserve’s 2% target, the report revealed a modest cooling in price increases across several sectors.
Headline CPI rose by 0.3% in September and 3% year-over-year, both slightly below economists’ expectations. Core CPI, which excludes volatile food and energy prices, increased by just 0.2% on the month and held steady at 3% annually. These softer figures helped reinforce market expectations of imminent interest rate cuts.
Markets React Positively to Data
Investors responded swiftly. According to CME Group’s FedWatch tool, markets are pricing in a near-certainty of a Federal Reserve rate cut at next week’s meeting, and now view two cuts before year-end as the most likely scenario. The probability that the Fed does not ease at least twice has dropped to just 4%.
The CPI report, although released amid a partial government shutdown, was compiled due to its critical role in calculating Social Security cost-of-living adjustments. Barring a resolution to the shutdown, it may be the last official economic report published in the near term.
Sector Highlights: Shelter, Apparel, Tech, and Labor
Shelter prices, which account for one-third of the CPI basket, showed slight relief. The index rose just 0.2% in September and remained steady at 3.6% annually. Owners’ equivalent rent—a key component that estimates rental value of owned homes—climbed only 0.1%, its smallest increase since November 2020.
In other categories, apparel prices rose by 0.7%, while sporting goods climbed 1%. However, technology prices continued to fall, with smartphones down 2.2% on the month and 14.9% year-over-year. Gardening and lawn care services, which are sensitive to labor market changes and immigration patterns, showed a sharp 13.9% annual increase.
Expert Views Reflect Cautious Optimism
Rick Rieder of BlackRock interpreted the CPI data as moderately positive. “Inflation readings are encouraging, albeit still above target. The trend suggests the Fed can proceed with rate cuts,” he stated. Krishna Guha of Evercore ISM echoed that tariff-related inflation appears limited to one-off impacts rather than long-term pressures.
Still, some analysts warned of uneven impacts across income groups. Joseph Brusuelas from RSK pointed to persistent increases in food, housing, and utility costs, disproportionately affecting middle and lower-income households. “Wage growth is slowing, and cost-of-living pressures remain intense for many,” he noted.
