The consumer price index rose at an annual rate of 3% in September, lower than economists forecast, as the impact of President Trump’s tariffs remained muted.
By the numbers
Economists surveyed by financial data firm FactSet forecast an annual CPI rise of 3.1% last month. The CPI measures price changes for a basket of goods and services typically purchased by consumers.
While most federal economic data releases have been suspended during the government shutdown, the Department of Labor is make an exception for September CPI data. That’s because the inflation rate is needed to determine the Social Security Administration’s annual cost-of-living adjustment for beneficiaries, which is also expected to be announced Friday.
The September CPI report could be the last inflation data economists see for a while. The Labor Department is unlikely to release inflation figures next month because of difficulties collecting data during the shutdown, the Trump administration said in an email Friday.
What economists say
Inflation is rising slightly in part because of tariffs imposed by the Trump administration, according to economists. U.S. businesses bear some of the costs in the form of lower profits, which has lessened the impact of import duties on consumers.
However, companies also transmit up to 55% of these import taxes on consumers in the form of higher prices, according to a Goldman Sachs analysis. Other research shows a lower transmission rate tariff costs for buyers.
“Tariffs have put upward pressure on prices, particularly in the goods-producing sector,” Brandon Zureick, senior managing director and chief economist at investment firm Johnson Investment Counsel, told CBS News. “We are definitely a little higher than at the start of the year and above the Fed’s target” of 2% annual inflation.
Mr. Trump has highlighted the prices as a tool to protect America’s manufacturing industry, to convince companies to relocate their factories domestically, and to generate billions in new federal revenue.
Prices are rising much more slowly today than during their peak growth in June 2022, when the CPI hit a 40-year high of 9.1% and put the Federal Reserve on a path to hike interest rates. Higher borrowing costs can moderate inflation because they make loans and credit cards more expensive, which can prompt consumers and businesses to cut spending.
What does CPI mean for interest rates?
The recent rise in inflation is complicating the Fed’s decision on interest rates, with the central bank expected to make its next rate decision on October 29. But today’s inflation data could provide further support for a further decline, analysts said Friday.
“There is not much in today’s benign CPI report that would ‘spook’ the Fed and we continue to expect further easing at next week’s Fed meeting,” Lindsay Rosner, head of multi-sector fixed income investing at Goldman Sachs Asset Management, said in an email Friday. “A December rate cut also remains likely, with the current data drought giving the Fed little reason to deviate from the path laid out in the dot plot.”
However, inflation is rising slightly, which could be an argument in favor of keeping rates stable. But at the same time, the labor market is experiencing a sharp slowdown in hiringthat Fed Chairman Jerome Powell cited last month when the central bank made its first rate cut of 2025. Lower borrowing costs can help support the labor market by making borrowing cheaper for businesses, encouraging them to expand and hire.
This means that the combination of rising inflation and slowing job growth puts the Fed’s dual mandate – keeping inflation and unemployment low – into conflict. Powell said earlier this month that risks posed by the labor market could outweigh fears linked to rising inflation.
“The Fed has recognized labor market trends as changing its guidance,” Zureick said. “We have been dangerously close to zero job growth for the past few months.”
Given the Fed’s focus on labor market risks, the CPI rate hike is unlikely to derail expectations of a quarter-point rate cut at the Fed’s next meeting later this month, economists say.
The probability of a 0.25 percentage point cut at the Oct. 29 Fed meeting is estimated at 98.9%, according to CME FedWatch.