September CPI Report Shows Inflation Remains Red-Hot: What to Know
The September CPI report keeps a rate hike in play for the next Fed meeting later this month. Here's what economists are saying about the inflation data.
In mid-September, the Federal Reserve raised interest rates for the first time in three years. In its policy statement, the central bank stated that "inflation remains elevated," and the rate hike "will support a timelier return to the Committee's 2 percent goal."
The decision followed the August Consumer Price Index (CPI) report, which showed headline inflation was "uncomfortably high," explains David Payne, staff economist and reporter for The Kiplinger Letter. The pickup, he says, was driven by higher gas and fuel oil prices, shelter costs and airfares.
And with energy costs likely to stay elevated as the situation in the Middle East remains unresolved, Payne believes the annual CPI rate will end the year at 4%, while core CPI will be at 2.7%.
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With another Fed meeting on the near-term horizon — the central bank will announce its next policy decision on Wednesday, October 28 — the release of the September CPI report is a key economic event we're tracking.
According to the Bureau of Labor Statistics (BLS), the CPI rose 0.6% from August to September and 3.7% year over year.
This is faster than the 0.4% monthly and 3.4% annual increases seen in August, with the year-over-year rate coming in above economists' estimate of a 3.6% rise.
"The index for gasoline rose 9.1 percent in September, accounting for over half of the monthly all items increase," according to the BLS. "The energy index increased 5.2 percent over the month following a 2.1-percent increase in August."
Shelter costs were higher, too, while food prices were unchanged.
What is the CPI?
"CPI is a measure of the average price of that basket of goods and services over time," writes Kiplinger contributor Coryanne Hicks. "The specific goods and services within the CPI basket are based on information that around 24,000 families and individuals give the U.S. Bureau of Labor Statistics on what they buy."
The two primary measures of CPI are headline, which is the total inflation rate experienced by households, and core CPI, which excludes volatile food and energy prices.
Core CPI rose 0.3% month over month in September, the same as in August. Year over year, core inflation was up 2.6%, faster than the 2.4% rise from the month prior.
Economists expected core CPI to rise 0.2% month over month and 2.5% year over year.
Prices for recreation, used cars and trucks, education, airline fares, medical care and apparel were higher, while communications costs were slightly lower.
With the September CPI report on the books, we looked at what economists, strategists and other Wall Street experts are saying about the data and what it means for the Fed and the economy. These outlooks, edited at times for brevity, are below.
What Wall Street thinks about the September CPI report
"Chairman Warsh advised market participants to focus on the trend and not the incremental data. September CPI leaves intact the upward trend in core prices over the last 6 months. At the margin, it bolsters the case for a hike at the October FOMC. However, we think the bigger picture is the balance of risks. The economy is growing strongly so the FOMC can place more emphasis on the inflation mandate." - Brad Conger, Chief Investment Officer at Hirtle & Co.
"Today's warmer core CPI release bolsters the case for additional rate hikes, but recent dovish Fed-speak from New York President Williams and Governor Jefferson suggests that the bar is high for an immediate hike. In our view, September's print was likely not sufficient for the Fed to execute back-to-back increases at the October FOMC meeting. The steady rise in long yields has increased corporate/consumer borrowing costs and tightened financial conditions alongside the Fed's move, meaning the bond market has been doing some of the heavy lifting for the Fed." - Jeff Schulze, Head Investment Strategist at Franklin Templeton Institute
"Wednesday's CPI was stronger than expected, and it's clear as ever that inflation is stubborn and moving in the wrong direction. The inflation uptick is likely to lead the Federal Reserve to start a rate-hiking cycle. While we expect the Fed to pause on any rate changes in October, we expect rate hikes to resume in December and continue until June 2026. The Fed will not tolerate inflation at these levels and will apply the same playbook as it did in 2022 to keep it in check with a series of interest rate increases." - Skyler Weinand, Chief Investment Officer at Regan Capital
"Today's CPI report came in hotter than expected with September headline rising 0.649% MoM and core CPI increasing 0.335% MoM, versus expectations of 0.58% and 0.21%, respectively. With underlying inflation failing to cool, the September rate hike now looks like a start rather than a final move, and expectations for further rate hikes have increased. The Fed will remain data-dependent, but the focus now turns to October 28, where a second consecutive hike is firmly on the table." - Dustin Thackeray, CFA, Head of Portfolio Management at Crewe Advisors
"In our view, today's print puts the Fed's tactical breather priced into the market for October in question. With $100-plus crude adding friction to already sticky core prices, the latest data increasingly complicates the disinflation narrative and may limit the Fed's flexibility." - Tim Urbanowicz, Chief Investment Strategist, Innovator ETFs from Goldman Sachs Asset Management
"CPI came in hot and it wasn't just fuel prices, as core inflation ran at a 3.7% annualized pace in September and 3.2% over three years. The only surprise is that investors keep getting surprised by broad-based inflation. And we've yet to see the full impact of higher diesel prices and the AI boom. Another Fed hike to 4.3% looks likely this year, but that's hardly restrictive enough to bring inflation down to 2%." - Sonu Varghese, Chief Market Strategist at Carson Group
"Inflation is cooking with gas. It is abundantly clear where the inflation impulse originates, but two wars need to end before we get any relief. The Federal Reserve made the mistake of calling COVID-era inflation transitory, and now it appears they are set to make the same mistake in reverse on the energy supply shock." - Jamie Cox, Managing Partner for Harris Financial Group
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