The prices people pay for a variety of goods and services rose less than expected in September, leaving the door wide open for another rate cut next week, according to a report from the Bureau of Labor Statistics on Friday.
The consumer price index rose 0.3% from the same month, bringing the annual inflation rate to 3%. Economists surveyed by Dow Jones had called for readings of 0.4% and 3.1%, respectively. The annual rate reflects a 0.1 percentage point increase from August.
Core CPI, which excludes food and energy, rose 0.2% monthly and 3% annually, compared to estimates of 0.3% and 3.1%, respectively. On a monthly basis, core CPI increased by 0.3% in both July and August.
The CPI reading is the only official economic indicator allowed to be released during the government shutdown.
“Like an oasis to quench the thirst of a weary desert traveler, today’s CPI numbers provided investors with their first look at the barren wasteland of government data that has existed since the start of the government shutdown on October 1,” said John Kershner, global head of securitized products at Janus Henderson. “Investors were not disappointed. Inflation was slower than expected, leading to a modest rally in bond markets and ensuring the Fed will cut interest rates at next week’s Open Market Committee meeting.”
A 4.1% rise in gasoline prices was the biggest factor in the report, which shows inflationary pressures are well under control. Food prices rose 0.2%. Overall commodity prices rose 0.5%. On an annual basis, energy increased by 2.8% and food by 3.1%.
In the food index, prices for meat, poultry, fish and eggs have increased by 5.2% over the past year, while non-alcoholic beverages have increased by 5.3%. In the energy sector, electricity prices rose 5.1% and natural gas prices rose 11.7% over the past year, while gasoline prices actually fell 0.5% over the same period.
Evacuation costs, which account for about one-third of the CPI, increased by only 0.2%, an increase of 3.6% compared to the previous year. Services excluding shelter costs also rose by 0.2%.
Prices for new cars rose 0.8%, but prices for used cars and trucks fell 0.4%.
Stock market futures rose further following the announcement, but U.S. Treasury yields turned slightly negative.
“Inflation may not be slowing, but it would no longer be surprising to see it rise,” said David Russell, global head of market strategy at TradeStation.
This report provides a glimpse into the state of the US economy at a time when all other statistical releases have been suspended. President Donald Trump’s tariffs have had a limited impact, but they likely have not yet fully penetrated the economy.
Core product prices rose only 0.2% from the same month. According to James Knightley, chief international economist at ING, data from the CPI report shows that the “realized” tariff rate, combined with the tariff revenue generated by the tariffs, is just 10%.
“Strong substitution effects are already emerging, with U.S. companies sourcing products to countries with lower tariffs as the mix of imports changes,” Knightley wrote.
“As a result, businesses have been able to absorb more modest cost increases than feared, and so far the impact on inflation has been less than expected,” he said. “While we expect realized tariff rates to rise over time and have a larger impact on commodity prices, we continue to maintain that tariffs are a one-time, gradual change in prices rather than creating more sustained inflation.”
Final report to the Fed
The BLS released this data because the Social Security Administration uses it as a benchmark for cost of living adjustments (COLA) in benefit checks. Otherwise, the federal government would stop aggregating and publishing all data until the fiscal impasse in Washington is resolved. The CPI report was originally scheduled to be released on October 15th.
In addition to providing COLA guidance, the CPI announcement will be the last important data point the Federal Reserve will have before making its interest rate decision next week. The Federal Reserve has set an inflation target of 2%. The last time the composite index was below that level was in February 2021.
A shopper looks at a sales ad at a grocery store on Tuesday, October 21, 2025 in West Milton, Ohio, USA.
Kyle Grillot | Bloomberg | Getty Images
“This report clearly puts the Fed on track to cut rates,” said Art Hogan, chief market strategist at B. Riley Wealth. “The Fed is more focused on softening labor data and has made clear that it will continue to adhere to its full employment mandate even if core CPI remains well above its 2% target.”
Markets are almost certain that the central bank will cut the benchmark overnight borrowing rate by a quarter of a percentage point from its current target range of 4-4.25%. Traders are also expecting another rate cut in December.
But the path after that is less clear.
Concerns persist that President Trump’s tariffs could lead to another round of painful inflation. At the same time, Fed policymakers are concerned that this year’s job slump could widen, although layoffs remain low.
Tariff-sensitive apparel prices rose 0.7% in September, while durable goods rose 0.3%.
Fed Chairman Jerome Powell and his colleagues have struck a generally cautious tone about the pace of rate cuts as they weigh the threat of inflation against weakness in the labor market. President Trump has argued that inflation is no longer a problem and that the Fed should cut interest rates aggressively.
