Long-Awaited September CPI Comes in Lower Than Expected, as Fed Poised to Cut 25 bps Next Week

The long-awaited September Consumer Price Index (CPI) report showed inflation rising slightly less than expected, strengthening market bets that the Fed will cut interest rates by 25 basis points next week.

The CPI rose 0.3% in September, below economists’ expectations for a 0.4% increase. On an annual basis, inflation came in at 3.0%, slightly under the anticipated 3.1%. The report marks the first inflation data release since the government shutdown and reflects a modest uptick from August’s 2.9% reading.

According to the Bureau of Labor Statistics , energy costs were the primary driver of the monthly gain, with the gasoline index surging 4.1% and the overall energy index rising 1.5%. The food index increased 0.2%, led by a 0.3% rise in food at home and a 0.1% increase in food away from home.

Core inflation — which excludes food and energy — rose 0.2% on the month, following two consecutive 0.3% gains. Key contributors included higher prices for shelter, airline fares, recreation, household furnishings, and apparel, while used cars, motor vehicle insurance, and communication services saw declines.

This CPI report was published under unusual circumstances due to the ongoing federal government shutdown, which began on October 1. Most operations at the BLS had been suspended, delaying the original release scheduled for October 15. To ensure the Social Security Administration could calculate its annual cost-of-living adjustment, the BLS recalled some staff to compile and release the data. The bureau also noted that, because of the shutdown, its staff would be unable to answer public inquiries about the CPI after 12:00 PM Washington time.

Despite the slight pickup in inflation, the Fed is widely expected to cut rates by 25 basis points at its upcoming meeting. Labor market data — delayed due to the shutdown — remains a central concern for policymakers. According to CME’s FedWatch tool, traders are pricing in a 97% probability of a rate cut next week.