Prices people pay for a variety of goods and services rose less than expected in September, according to a report from the Bureau of Labor Statistics on Friday that leaves the door wide open for another rate cut next week.
The consumer price index recorded a month-on-month increase of 0.3%, which corresponds to an annual inflation rate of 3%. Economists surveyed by Dow Jones had expected values of 0.4% and 3.1%, respectively. The annual rate reflected a 0.1 percentage point increase from August.
Excluding food and energy, the core CPI recorded a monthly increase of 0.2% and an annual rate of 3%, compared to estimates of 0.3% and 3.1%, respectively. The monthly core CPI recorded a 0.3% increase in both July and August.
The CPI is the only official economic data allowed to be released during the government shutdown.
“Like an oasis quenching the thirst of a weary desert traveler, today’s CPI number offered investors their first tidbit of information from the barren wasteland of government data that has existed since the shutdown began on October 1,” wrote John Kerschner, global head of securitized products at Janus Henderson. “Investors were not disappointed. Inflation was weaker than expected, leading to a muted recovery in the bond market and prompting the Fed to cut interest rates at next week’s Federal Open Market Committee meeting.”
A 4.1% rise in gasoline prices contributed the most to a report that otherwise showed more subdued inflation pressures. Food prices rose 0.2%. Overall, raw material prices rose by 0.5%. On an annual basis, energy prices rose by 2.8% and food prices by 3.1%.
In the food index, prices for meat, poultry, fish and eggs rose 5.2% last year, while non-alcoholic drinks rose 5.3%. In the energy sector, while electricity prices increased by 5.1% and natural gas prices increased by 11.7%, gasoline prices actually fell by 0.5% during this period.
Accommodation costs, which account for about a third of the weight in the CPI, rose just 0.2%, 3.6% higher than a year ago. Benefits excluding accommodation costs also rose by 0.2%.
New vehicles rose 0.8%, while used car and truck prices fell 0.4%.
Stock market futures added to gains after the release, while Treasury yields were slightly negative.
“Inflation may not be slowing, but it is no longer surprising when it picks up,” said David Russell, global head of market strategy at TradeStation.
The report provides insight into the state of the U.S. economy at a time when all other data releases have been paused. The impact of President Donald Trump’s tariffs has been limited, although they have likely not yet fully penetrated the economy.
Prices for core goods only rose by 0.2% month-on-month. The data in the CPI report, combined with tariff revenue generated by tariffs, suggests a “realized” tariff rate of just 10%, according to James Knightley, chief international affairs economist at ING.
There are signs that “a strong substitution effect is already being felt – US companies are shifting their product sourcing to countries with lower tariffs, changing the composition of imports,” Knightly wrote.
“The result is that companies are better able to absorb these more modest than feared cost increases and the impact on inflation is smaller than previously predicted,” he said. “Over time, we expect the realized tariff rate to increase and a greater impact on goods prices. However, we continue to argue that tariffs will be a one-off, gradual change in prices, rather than something that will lead to more persistent inflation.”
Final report to the Fed
The BLS released the data specifically because the Social Security Administration uses it as a benchmark for cost-of-living adjustments (COLAs) in benefit reviews. Otherwise, the federal government has suspended all data collection and publication until the budget crisis in Washington is resolved. The CPI report was originally scheduled to be released on October 15.
In addition to providing a COLA guide, the CPI release is the last key data point the Federal Reserve will receive before making its interest rate decision next week. The Fed has an inflation target of 2%. The leading value was last below this level in February 2021.
A shopper looks at a sales display at a grocery store in West Milton, Ohio, U.S., on Tuesday, Oct. 21, 2025.
Kyle Grillot | Bloomberg | Getty Images
“This report will clearly keep the Fed on track and cut rates,” said Art Hogan, chief market strategist at B. Riley Wealth. “The Fed has made clear that it is more focused on weakening labor market data and will continue to defend its full employment mandate even as core CPI is well above its 2 percent target.”
Markets are almost certainly pricing in the central bank to cut its federal funds rate by a quarter of a percentage point from its current target range of 4% to 4.25%. Traders also expect a further cut in December.
However, the path thereafter is much less clear.
Concerns remain that Trump’s tariffs could trigger another round of painful inflation. At the same time, Fed policymakers worry that the hiring slowdown could widen this year, although layoffs remain low.
Prices of tariff-dependent clothing rose 0.7% in September, while durable goods rose 0.3%.
Federal Reserve Chairman Jerome Powell and his colleagues have generally expressed caution about the pace of interest rate cuts as they weigh the threat of inflation against the weakness of the labor market. Trump, for his part, has insisted that inflation is no longer a problem and that the Fed should aggressively cut interest rates.
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