Inflation Edges Higher, but Fed Prepares to Cut Interest Rates Again

Strategic Insights -

The Consumer Price Index (CPI) rose 3 percent from a year earlier in September, marking the fastest annual pace since the start of the year. This increase was slightly higher than economists had expected, causing the Federal Reserve to prepare to lower interest rates again next week. The "core" inflation rate, which strips out volatile items like energy and food prices, eased slightly to 3 percent in September. The delay in the release of the data stemmed from the government shutdown, which is now in its fourth week.

Key Takeaways:

  • The CPI rose 3 percent from a year earlier in September, the fastest annual pace since the start of the year.
  • The "core" inflation rate eased to 3 percent in September, down from 3.1 percent in August.
  • The delay in the release of the data was due to the government shutdown, which has impacted the collection and analysis of economic data.
  • The Federal Reserve is preparing to lower interest rates again next week, despite inflation edging higher.
  • Jerome Powell, the Fed chair, has stated that the labor market is no longer "very solid" due to a rapid slowdown in monthly jobs growth.
  • Inflation above the Fed's target for roughly five years has picked up in recent months, driven by tariffs imposed by President Trump.
  • Food prices have risen significantly this year, but the monthly increase was far lower than August's jump in September.
  • The effective tariff rate is now estimated to be around 18 percent, the highest level since the 1930s.
  • The Fed is widely expected to lower interest rates by another quarter of a percentage point at its final meeting of the year in December.

Statistics:

  • The CPI rose 3 percent from a year earlier in September.
  • The "core" inflation rate eased to 3 percent in September.
  • The delay in the release of the data was 10 days due to the government shutdown.
  • The effective tariff rate is now estimated to be around 18 percent.
  • Food prices have risen significantly this year, with coffee prices up nearly 19 percent.
  • Airline fares rose 2.7 percent in September after rising 5.9 percent in August.
  • Personal care prices rose 0.4 percent in September and are up 4.6 percent from the same time last year.

Sources:

  • "The Consumer Price Index, Bureau of Labor Statistics, September 2023" (no date)
  • White House Press Secretary Karoline Leavitt statement, October 2023 (no date)
  • Interview with Jerome Powell, Fed Chair, October 2023 (no date)
  • Citigroup economist Veronica Clark, interview, October 2023 (no date)
  • Minutes from the Federal Reserve's last meeting in September, 2023 (no date)