U.S. inflation edged only slightly higher in September, as the Federal Reserve prepares to lower interest rates again next week to shore up the labor market.
The Consumer Price Index, released 10 days late by the Bureau of Labor Statistics on Friday, rose 3 percent from the same time last year. That is the fastest annual pace since the start of the year and marks a small rise from the previous 2.9 percent level. “Core” inflation, which the central bank tracks as a gauge of underlying inflation since it strips out volatile items like energy and food prices, eased slightly to 3 percent. In August, it registered a 3.1 percent pace.
On a monthly basis, consumer prices overall rose 0.3 percent. “Core” goods and services rose only 0.2 percent. Economists had been expecting slightly more intense price pressures.
The delay in the release of the data stemmed from the government shutdown, which is now in its fourth week. The lapse in funding had forced the Bureau of Labor Statistics to suspend all operations, including the release of the monthly jobs report and any future data collection.
On Friday, Karoline Leavitt, the White House press secretary, said that October’s inflation report would likely not be released because of the shutdown, “which will leave businesses, markets, families and the Federal Reserve in disarray.”
Officials at the Fed often refer to the official government statistics as the “gold standard” for economic data and have conceded that alternative sources that track jobs, inflation, spending and other metrics are not as consistent or comprehensive.
The issue is particularly acute for measuring price pressures across the economy, said Aditya Bhave, a senior economist at Bank of America. “There’s just not a lot of good alternative for the government data.”
“Services are roughly two-thirds of consumer spending, and we just don’t have a good read on those prices.,” Mr. Bhave added. “That’s what is really hard right now.”
An exception was made for September’s inflation report because of a Nov. 1 deadline for the Social Security Administration to publish its annual adjustment to benefits, which accounts for changes in the cost of living.
The latest C.P.I report was published just ahead of the Fed’s next two-day policy meeting, which will kick off on Oct. 28. Officials are widely expected to lower borrowing costs by a quarter of a percentage point for a second straight meeting, which will bring interest rates down to a range of 3.75 percent to 4 percent.
But the task ahead for the Fed is poised to only get more difficult. Officials must decide how much further to reduce borrowing costs at a moment when their goals of low, stable inflation and a healthy labor market are in tension with one another and most of the economic data they follow most closely is not being released because of the government shutdown.
The decision to scale back how much the Fed is restraining the economy reflects a growing concern about the health of the labor market. Jerome H. Powell, the Fed chair, recently said that it was no longer accurate to describe the labor market as “very solid” following a rapid slowdown in the pace of monthly jobs growth even as the unemployment rate has stayed relatively stable.
That has been caused by companies pulling back from hiring amid uncertainty about the economic outlook as well as a reduction in the supply of available workers in part because of President Trump’s immigration restrictions.
But a wobbly labor market is not the Fed’s only challenge. Inflation, which has been stuck above the Fed’s target for roughly five years, has picked up in recent months. Prices for a range of consumer goods have risen as a result of President Trump’s tariffs, which include levies on nearly all of the country’s trading partners and sector-specific ones on products like cars and lumber. The effective tariff rate is now estimated to be around 18 percent, the highest level since the 1930s.
Food prices have risen significantly this year, including those for coffee and beef. But in September, the monthly increase in food prices was far lower than August’s jump, at just 0.2 percent. Coffee prices are still up nearly 19 percent for the year despite falling 0.1 percent in September.
Prices for furniture and apparel have also risen. In September, the household furnishings index rose 0.4 percent while the one tracking apparel prices rose 0.7 percent. But in other categories, like cars, price increases have been more contained. New car prices rose only 0.2 percent in September, while prices for used cars and trucks fell 0.4 percent. Another offset has been lower energy-related prices in recent months, although that reversed somewhat in September. Gasoline prices rose 4.1 percent and was the largest factor driving overall inflation for the month.
Many companies stockpiled products before the tariffs were enacted, given them a buffer of inventory to exhaust before needing to reorder. Some have also been hesitant to raise prices on their customers, for fear that doing so will further dampen demand.
That has helped to alleviate some concerns about the overall impact of tariffs on consumer prices, which Mr. Powell has long contended would lead to a one-time price increase that will take time to show up and eventually fade. September’s report was also more benign than expected, paving the way for the Fed to continue lowering borrowing costs.
“It just seems like the consumer is not necessarily strong enough to handle some of those big price increases,” said Veronica Clark, an economist at Citigroup. She reckons that it could take a year or longer for prices to fully adjust to the higher tariffs.
“Demand for workers is really low, and wages are going to keep slowing.”
But not all officials at the Fed are quick to dismiss the inflation risk. According to minutes from the central bank’s last meeting in September, a few policymakers were reluctant to cut interest rates last month because of the lack of progress toward the Fed’s 2 percent goal.
Part of the issue is that inflation across the services sector, which tracks things like personal hair care, travel-related expenses and auto repairs, has stayed surprisingly sticky. In September, airline fares rose 2.7 percent, after having risen 5.9 percent in August. Personal care prices rose 0.4 percent and are up 4.6 percent compared to the same time last year.
Elevated services inflation has occurred even as shelter-related price increases have eased. In September, an index that serves as a proxy for housing costs rose just 0.1 percent. That was the smallest one-month increase since January 2021. Hotel costs rose 1.3 percent.
One fear is that inflation gets stuck well above the Fed’s target, especially if the central bank continues to ease borrowing costs. After next week’s anticipated cut, 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.
The longer the government shutdown lasts, however, the harder it will be for the Fed to get a good read of the economy. October’s inflation and labor market data, for example, are not being collected or analyzed, meaning that the corresponding reports scheduled for November could also be delayed.
“We’ll start to miss that data,” said Mr. Powell at a recent event, adding that it will become “more challenging” as the shutdown drags on and additional data is not being collected.
Colby Smith covers the Federal Reserve and the U.S. economy for The Times.
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