Official data released on a Friday indicated that U.S. consumer prices had risen slightly less than anticipated in September. This weaker-than-expected inflation figure was observed to have helped preserve market expectations that a decision would be made by the Federal Reserve to cut interest rates during its imminent policy meeting, which was scheduled for the following week. The data was published by the Labor Department’s Bureau of Labor Statistics, despite being delayed due to a recent government shutdown, with the report’s eventual release being deemed necessary to facilitate the calculation of the 2026 cost-of-living adjustment for millions of retirees and other benefits recipients by the Social Security Administration.
The Consumer Price Index (CPI) was reported to have risen by 0.3% last month, a figure that followed a 0.4% increase that had been recorded in August. When viewed over the twelve-month period ending in September, the CPI increased by 3.0%, which represented a slight advance from the 2.9% rise seen in the year through August. These key figures were generally more benign than the consensus forecasts that had been made by economists, who had been polled and had collectively predicted that the CPI would have increased by 0.4% in the month and would have registered a 3.1% rise on a year-on-year basis.
Further analysis of the data, which excluded the notoriously volatile food and energy components, revealed a similar pattern of moderation. The so-called core CPI was reported to have gained 0.2% in September, a decrease in momentum from the 0.3% increase that had been observed in August. On an annual basis, the core CPI increased by 3.0%, which was slightly down from the 3.1% rise reported for the twelve months through August. This particular component of the inflation report is often closely scrutinized by the Federal Reserve as an indicator of underlying and persistent price pressures within the economy.
The reaction across financial markets to the inflation report was discernible and generally positive. S&P 500 E-mini futures were observed to have climbed significantly, rising by 44.75 points, or 0.66%, by the time of the latest reading. In the bond market, U.S. Treasury yields initially fell before a partial paring of the declines was seen. The yield on the 10-year Treasury note was last reported to be unchanged at 3.989%, while the two-year yield fell by 1.5 basis points to 3.467%. In the foreign exchange market, the dollar index weakened, declining by 0.07% to 98.87.
Commentary from analysts suggested that while the headline numbers were weaker than anticipated, underlying inflationary pressures were believed to still persist. It was pointed out that some of the downward misses were driven by “noisy rent components,” from which it was predicted that little further disinflationary pressure could be expected. Concurrently, it was observed that tariffs appeared to be gradually being passed through into the prices of a wide array of consumer goods. Specifically, the apparel category was seen to be ticking higher, a category where the full pass-through of these costs had been slower to materialize but was now considered very likely to continue through the end of the year. Therefore, the signs of those lingering pressures were judged to still be quite clear within the released data.
It was suggested that, within a policy context where a certain degree of inflation is being tolerated, the report was seen as a favorable development. The data was expected to encourage the Federal Reserve to maintain its current trajectory of implementing what were described as “insurance cuts” or a “normalization” of policy, depending on the interpretation. In the absence of other top-tier economic data, due to the government shutdown, it was considered very likely that the central bank would deliver a policy outcome closely aligned with its previously indicated outlook, until new data could be published to potentially challenge that path.
The data was characterized as “quite positive” for the outlook. It was further stated that the report “certainly clears the way” for the Federal Reserve to implement the expected rate cut in the coming week, a move that was largely already anticipated. Moreover, the benign inflation figures were seen as leading to a higher expectation of at least two more rate cuts by March. Given the lack of other official data due to the shutdown, it was noted that the central bank could now focus more on the employment situation if inflation was seen to be maintaining its current level and not spiking unexpectedly.
