US Inflation Climbs 2.4% in September, Exceeding Expectations

US Inflation Data Presents Challenge for Federal Reserve

Headline inflation in the United States experienced a slowdown in September, although it outpaced expectations, creating a complex situation for Federal Reserve officials as they contemplate potential interest rate reductions later this year.

The consumer price index (CPI), a key indicator of inflation, increased by 2.4% compared to the same month last year, down from 2.5% in August. Economists had anticipated a figure of 2.3%.

On a month-to-month basis, the CPI reading remained unchanged from August’s pace of 0.2%, which was expected to decrease slightly to 0.1%.

Conversely, "core" CPI, which excludes more volatile items such as food and energy, unexpectedly rose to 3.3% year-on-year, surpassing forecasts that suggested it would remain stable at 3.2%, the rate recorded in August.

Monthly, core consumer prices grew by 0.3%, consistent with the previous month’s rate, while projections had indicated a slowdown to 0.2%.

In related data, seasonally adjusted claims for first-time unemployment benefits reached 258,000 for the week ending October 5, an increase from 225,000 in the prior week. This marks the highest level of initial claims since August 2023.

The four-week moving average, which accounts for weekly fluctuations in jobless claims, also rose by 6,750, totaling 231,000.

These data points emerge as Fed policymakers strive to achieve a "soft landing" for the U.S. economy, seeking to maintain elevated interest rates to curb inflation without triggering a significant decline in labor demand or overall economic activity.

Last month, the Fed reduced borrowing costs by 50 basis points, arguing that such a move was essential to support the job market amidst declining inflation. However, minutes from the recent meeting indicated that some officials favored a more conservative quarter-point cut, expressing concerns that price growth remains above the Fed’s 2% target.

Market traders are predicting an 85% likelihood of another 25 basis point rate cut at the upcoming November meeting. In contrast, there is a roughly 14% chance that rates will remain unchanged within the current range of 4.75% to 5.00%.

Analysts have suggested that the immediate interpretation of the latest data could be viewed negatively, raising concerns about stagflation—a scenario characterized by stagnant economic growth combined with rising prices. Nonetheless, they believe the Fed is unlikely to reassess its overall strategy in light of this data and maintains expectations for 25-basis point reductions in their final two meetings of 2024.

They noted that, given recent discussions from the rate-setting committee have shifted focus toward labor market dynamics, Fed Chair Powell and his colleagues may devote more attention to the jobless claims data than to the CPI figures.