According to a Bureau of Labor Statistics report, the US Consumer Price Index (CPI) rose by 3% annually in September 2025, a slower pace than the forecasted 3.1%. This was the highest annual rate since January 2025 but came in below market expectations.
Key figures from the report
Annual inflation: The 3% increase in September follows a 2.9% rise in August.Monthly increase: The CPI rose 0.3% month-over-month in September, a moderation from the 0.4% increase recorded in August.Core inflation: The core CPI, which excludes volatile food and energy prices, also slowed to a 3% annual rate in September, down from 3.1% in August and below expectations.
Impact on policy and markets
Federal Reserve: The cooler-than-expected inflation data gives the Federal Reserve more leeway to proceed with its planned interest rate cuts, with analysts widely expecting a 25-basis-point reduction at the late October 2025 meeting.Market reaction: Following the report's release, the stock market showed positive movement, with the Dow, S&P 500, and Nasdaq all rising.Consumer purchasing power: A moderation in inflation could improve consumers' purchasing power, though the effects may vary across different economic sectors.Government shutdown: The report's release was delayed by a government shutdown, but the data was prioritized to meet the deadline for 2026 Social Security cost-of-living adjustments.
Factors influencing the data
Muted tariff impact: The effects of trade tariffs on inflation have been less pronounced than many economists initially projected. Some companies have absorbed the higher costs, but there is a risk that they could eventually be passed on to consumers.Cooling prices: Cooling services prices, particularly in housing, played a role in the slower-than-expected core inflation.
Broader context
Long-term outlook: Despite the recent uptick, the Federal Reserve and economists still anticipate inflation will ease further in 2026.Labor market: The Federal Reserve has been balancing its inflation goals with a weakening labor market, which some see as further justification for rate cuts.
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