The final official inflation report before the US government shutdown is released—what does the September CPI tell us?

On Friday, October 24, the U.S. Bureau of Labor Statistics (BLS) released the last inflation report collected before the federal government shutdown—the September Consumer Price Index (CPI) report. This official report, delayed by a week and a half, shows that although the inflation rate remains far above the Federal Reserve’s 2% target, there are no signs of it spiraling out of control, and in some key areas, it has at least slightly eased.

September CPI rose 0.3% month-over-month and 3% year-over-year. Core CPI increased 0.2% month-over-month and 3% year-over-year, both slightly below market consensus expectations. Although CPI inflation is still significantly higher than the Federal Reserve’s 2% target, these moderate figures solidified market expectations for a rate cut next week and increased the likelihood of another cut in December.

The impacts of tariffs and immigration are starting to show. Clothing prices increased 0.7% month-over-month, sports equipment costs jumped 1%, and gardening and lawn care services surged 13.9% year-over-year. In contrast, smartphone prices actually declined 2.2%, with a year-over-year decrease of 14.9%. Housing costs, which account for one-third of the CPI weighting, only increased 0.2% month-over-month. Owners’ equivalent rent (OER) rose just 0.1%—the smallest increase in nearly five years.

After the CPI was released, the White House warned that, due to interruptions in data collection caused by the government shutdown, the October CPI report is unlikely to be released on schedule, marking the first-ever absence of an official CPI report.

Five Key Points: Inflation Cools, but Still Above Fed’s Target

The September CPI report can be summarized into five main points.

First, although overall CPI inflation is still far above the Federal Reserve’s 2% target, there are no signs of it getting out of control, and in some key areas, it has at least mildly eased. Both core and overall CPI figures came in below consensus forecasts.

Second, the market is almost certain the Federal Reserve will cut interest rates next week and has increased the odds of another cut in December. CME’s tool shows that after the release, the probability that the Fed will not cut rates again by the end of the year is less than 4% in the federal funds rate futures market.

Third, the impact of tariffs and immigration policies is starting to become evident. Prices of household goods rose 3% year-over-year—the highest since mid-2023; audio and video equipment increased 1.6%—the highest since 2021. "Super core" services excluding housing costs accelerated 0.35% month-over-month, one of the highest levels this year.

Fourth, housing costs that account for one-third of the CPI weighting show signs of easing. This category's inflation rose only 0.2% month-over-month in September, with annual growth steady at 3.6%. Owners’ equivalent rent (OER) increased only 0.1%, the smallest rise since November 2020.

Fifth, due to the suspension of government data collection and reporting caused by the shutdown, the BLS compiled this report solely because it serves as the benchmark for Social Security cost-of-living adjustments. This is likely to be the last official data report released before the impasse is resolved.

“New Fed Publication”: CPI May Weaken Hawks’ Resistance to Rate Cuts

After the CPI was released before the U.S. stock market opened, U.S. Treasury prices surged, yields hit daily lows; U.S. stock futures rose, stocks opened higher, with the three major indexes hitting intraday record highs; the dollar index quickly turned lower and hit a daily low before rebounding with volatility as stocks turned positive in early trading.

Journalist Nick Timiraos, dubbed the "New Federal Reserve Publication," commented:

The significance of the September CPI data for the Fed is that it may weaken hawkish resistance to rate cuts in October or December.

The CPI report released Friday may prompt the Fed to continue cutting rates next week, maintaining a dovish stance for subsequent meetings. Late this summer, the Fed judged that recent labor market weakness offset slightly easing inflation, leading it to cut rates, and the September CPI data is unlikely to change this view.

Latest data shows inflation remains high, but it’s not as worrying as Fed officials feared this spring when the Trump administration announced major tariff hikes.

This is partly due to the fact that the government’s indicator for housing cost growth has slowed significantly in the past two years, offsetting the impact of rising import prices.

Bloomberg economists Anna Wong and Chris G. Collins commented that the CPI report is the first major data release since the government shutdown, and its growth is moderate enough to allow the Fed to cut rates another 25 basis points next week and continue cutting rates at the December meeting.

B. Riley Wealth’s Chief Market Strategist Art Hogan said: “This report clearly paves the way for the Fed to continue cutting rates at its next meeting. The Fed has made it clear that it is more focused on weak labor data and will continue to defend its full employment mission, even though core CPI remains well above the Fed’s 2% target.”

Analysis: Inflation Expected to Continue Easing, Tariff Spillovers Still Weak

Rick Rieder, BlackRock’s Head of Fixed Income and rumored frontrunner for next Fed Chair last month, stated:

“Overall, today’s inflation data is encouraging. Although it remains above the Fed's 2% target, we believe the overall inflation trend can continue to ease over the coming year, as recent breakeven inflation data shows. This will allow the Fed to maintain its bias toward rate cuts.”

Krishna Guha, Head of Global Policy and Central Bank Strategy at Evercore ISM, noted: “Signs of tariff spillover effects remain weak, supporting the view that tariff hikes will translate into a one-off price increase, rather than sustained inflationary pressure.”

However, RSK Chief Economist Joseph Brusuelas offered a different perspective from a K-shaped economy vantage: “Looking at year-over-year data, food, meat, housing, and utilities have surged in cost. Households at the middle class and below, with slower wage growth, are clearly struggling to cope with the ongoing rise in living expenses. People on the lower branch of the K-shaped economy naturally ask: What are those celebrating slower price increases seeing that proves inflation isn’t eroding my bottom line and standard of living?”

White House Issues First-Ever CPI Data Absence Warning

Economists generally aren't concerned about the quality of the September CPI inflation report, since data was collected prior to the government shutdown. But since then, the U.S. Bureau of Labor Statistics has failed to collect new pricing information.

A White House-affiliated social media X account posted Friday that lack of funding has prevented investigators from conducting field work, "making it impossible for us to obtain critical data." The White House stressed this would be "the first time in history" that the data cannot be published.

White House Press Secretary Karoline Leavitt posted: "Democrats chose to keep the government shut down, which could cause the October inflation report to go missing. This will throw businesses, markets, families, and the Federal Reserve into chaos."

BLS spokesperson Stacey Standish said: "Once funding is restored, BLS will resume normal operations and announce any changes to the press release schedule on the BLS calendar." An official from the U.S. Department of Labor noted this matches the BLS handling process during previous government funding interruptions, stating that paused data collection will delay the publication of the October CPI report.

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