Prices rose 3.7 percent in September as Fed keeps up inflation fight

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Prices that consumers pay for a wide variety of goods and services increased at a slightly faster-than-expected pace in September, keeping inflation in the spotlight of policymakers.

The consumer price index, a closely followed inflation gauge, increased 0.4% on the month and 3.7% from a year ago, according to a Labor Department report Thursday. That compared to respective Dow Jones estimates of 0.3% and 3.6%.

Excluding volatile food and energy prices, so-called core CPI increased 0.3% on the month and 4.1% on a 12-month basis, both exactly in line with expectations. Policymakers place more weight on the core numbers as they tend to be better predictors of long-term trends.

In keeping with recent trends, shelter costs were the main factor in the inflation increase. The index for shelter, which makes up about one-third of the CPI weighting, accelerated 0.6% for the month and 7.2% from a year ago.

Energy costs rose 1.5%, including a 2.1% pickup in gasoline prices and 8.5% on fuel oil, and food was up 0.2% for the third month in a row.

Services prices, considered a key for the longer-run direction for inflation, also posted a 0.6% gain excluding energy services and were up 5.7% on a 12-month basis.

In September, key measures of consumer prices showed a slowdown in price increases. The Consumer Price Index (CPI) rose 3.7 percent from the previous year, matching the August reading and slightly exceeding economists' predictions of 3.6 percent. However, when excluding volatile food and fuel prices, a core measure of underlying price trends increased by 4.1 percent, down from 4.3 percent previously.

The Federal Reserve has been raising interest rates since March 2022 to curb economic growth and manage inflation. The gradual slowdown in inflation provides further confidence to Fed officials that additional rate hikes may not be necessary. Currently, borrowing costs are in a range of 5.25 to 5.5 percent, compared to near-zero 19 months ago. Whether a final quarter-point rate increase will be implemented is still being debated, but the plan is to maintain rates at a high level for some time, which could cool demand and discourage companies from raising prices.


Despite higher borrowing costs, the economy has remained resilient, with solid consumer spending, business expansion, and stronger-than-expected hiring last month. This suggests that inflation could cool without causing a recession. However, policymakers are cautious and monitoring the situation closely to prevent a rapid increase in prices.

Investors doubt that the Fed will raise borrowing costs again due to recent movements in market rates. Although the Fed sets short-term interest rates, longer-term rates, which have a greater impact on consumers, are influenced by various economic and financial factors. The recent rise in the yield on the 10-year Treasury bond could potentially slow down economic growth without requiring additional Fed action.


As a result, the Fed has adopted a patient approach and will carefully consider future rate moves. They acknowledge the tightening of financial markets and believe that market forces will help regulate the economy. Fed officials are closely monitoring these developments and assessing how higher rates affect their policy decisions in the coming months.

The Fed's long-term inflation target is 2 percent, but they use the Personal Consumption Expenditures (PCE) index as their preferred measure. The PCE inflation figures, which are calculated differently and released later in the month, will be available on October 27, just before the Fed's scheduled two-day meeting on October 31 and November 1.  

The Social Security Administration has announced a 3.2% cost-of-living adjustment for 2024.

These benefit adjustments are made annually to help benefits keep in place with inflation. Recipients will see the increase reflected in their January checks. 

In September, food prices continued to show a moderate increase, indicating a tangible sign of inflation for consumers. Overall, there was a 0.2 percent rise in food prices compared to the previous month, which was consistent with the rate of increase seen in August. On an annual basis, food prices rose by 3.7 percent in the year leading up to September, showing a slight decrease from the 4.3 percent increase observed in August.


Taking a closer look at the data, prices for groceries in September increased by 0.1 percent compared to the previous month, down from the 0.2 percent increase seen in August. The cost of eating at restaurants, on the other hand, rose by 0.4 percent in September, slightly higher than the 0.3 percent increase in August.

The prices of fruits and vegetables remained flat in September, following a slight decrease of 0.2 percent in August. However, there was a 0.4 percent increase in the costs of meats, poultry, and fish, compared to a 1 percent increase in August. Notably, pork prices experienced a significant increase of 1.6 percent. 

After a decline in the previous month, egg prices saw a revival, rising by 0.9 percent in September compared to August. However, over the past year, egg prices have decreased by 14.5 percent.

Economists anticipate that food costs will continue to ease in the upcoming months. However, potential risks such as geopolitical turmoil and extreme weather events could constrain supplies and lead to unexpected price increases. It is important to note that even though prices have been growing at a slower rate recently, consumers might still perceive grocery costs as significantly higher compared to 2019.

Stephen Juneau, an economist at Bank of America, emphasized that despite the slight easing in the rate of food price growth, grocery bills remain noticeably more expensive than they were in 2019. This could be a source of concern for consumers who have struggled with the increased cost of groceries in recent years.  

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