Consumer prices down even as food and shelter costs continue to rise

A Thursday federal report finds U.S. inflation dropped to its lowest level in over three years in September but the downtick came in shy of what most economists projected.
Prices on consumer goods and services rose at a 2.4% annual rate last month, according to the Labor Department’s September Consumer Price Index report, the lowest 12-month reading since February 2021. While down from August’s 2.5% measure, the September rate did not make it down to the 2.3% level that was widely expected.
Core inflation, which strips out volatile food and energy prices, came in at an annual rate of 3.3% in September, up 0.3% from August and a tenth of a percent higher over the last year.
On a monthly basis, overall inflation rose 0.2% from August, driven in large part by food prices, which saw an increase of 0.4% from August to September, and the calculation for shelter-related costs, which moved up 0.2% month-over-month in September. Falling energy prices last month, down 1.9% from this time last year, helped offset gains in other areas.
While the Federal Reserve prefers the Personal Consumption Index inflation measure, which uses data gathered from businesses instead of the consumer survey results used to measure CPI, the new information will be taken into account along with broader economic data ahead of the Fed’s next policy meeting, set for next month in the same week as the upcoming U.S. presidential election.
“September’s CPI report has good news and bad news for the Fed,” Eugenio Aleman, Raymond James’ chief economist, wrote in a note issued Thursday, per CNN. “The good news is that shelter costs slowed down to 0.2%, month-on-month, and 4.9%, year-over-year. However, it also showed that there are still plenty of upside risks for inflation going forward.”
Annual inflation for Mountain West states, which include Utah, was tracking well below the national level in September at 1.4%. That figure also represents the lowest regional inflation rate in the country last month.
A separate report released Thursday shows unemployment claims rose to 258,000 for the week ending Oct. 5, the highest level since Aug. 5, 2023, when the number of claims also hit 258,000. The uptick pushed the four-week moving average to 231,000, an increase of 6,750 from the previous week’s unrevised average of 224,250, according to the latest Labor Department data.
Last month, the Fed reduced its federal funds rate for the first time in four years, with the monetary body’s Federal Open Market Committee voting to assess a 0.5% cut at its September policy meeting, bringing the interest charged for intra-bank overnight lending into the 4.75% to 5% range. The move came as the Fed signaled a shift in focus on its two-part mandate of stable prices and maximum employment. While U.S. inflation continues to move closer to the Fed’s target annual rate of 2%, the body has become more focused on the employment side of its mandate in the face of a U.S. jobs market that has seen growth slow markedly alongside upticks in the unemployment rate.
Before September’s cut, the Fed’s benchmark rate had stood at 5.25% to 5.5% since last summer and was the highest in 23 years after a series of 11 straight increases levied earlier by the monetary body in its efforts to quash inflation. With the rate reduction, the Fed is aiming to incentivize consumer and business spending, by reducing the cost of debt, and help bolster the U.S. jobs sector.
At the conclusion of last month’s meeting, Fed Chairman Jerome Powell said the body was confident that inflation was well in hand and headed for the target annual rate of 2%.
“Our patient approach over the past year has paid dividends,” he said. “Inflation is now much closer to our objective and we have gained greater confidence that inflation is moving sustainably toward 2%.”
Powell also noted that the so-called “soft landing” of reining in inflation without spurring recessionary conditions was an achievable goal, and one that the rate adjustment was aiming for.
“We’re trying to achieve a situation where we restore price stability without the kind of painful increase in unemployment that has come sometimes with this inflation,” he said in September. “I think you could take today’s action as a sign of our strong commitment to achieve that goal.”