Consumer prices climbed at an 3.7% annual pace in September, matching the rate set in August as costs for shelter and other services increased. But growth in core prices, which strips out the volatile food and energy categories, decelerated from August to a 4.1% annual pace, from 4.3% previously.
The headline consumer-price index increased 0.4% in September from a month earlier, the Labor Department reported on Thursday, compared with a 0.6% climb in August. Economists had expected prices to rise 0.3% in September and for the annual pace of gains to slow to 3.6% from 3.7%.
Shelter costs were by far the largest contributor to the overall increase for the month, accounting for more than half of the total price gains. Rent costs climbed 0.5% for the second straight month, while an equivalent measure for homeowners jumped 0.6% after rising 0.4% the month before.
Food prices climbed 0.2% over the month, matching the pace set in previous months as growth in grocery prices ticked down to 0.1% while the increase in the cost of food at restaurants rose to 0.4%.
Energy prices were mixed. Utility gas services declined significantly, falling 1.9% over the month. Gasoline prices also decelerated dramatically, though they still climbed, with a 2.1% increase in September after a 10.6% gain in August.
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Strength in food and gasoline costs helped push the headline price gain up by 0.1 percentage point more than economists’ consensus expectations on both a monthly and annual basis. Core prices, which are generally considered a better gauge of where underlying inflation is headed, matched expectations on both a monthly and annual basis and reflected a mild slowing year over year.
Overall, the report highlights just how stubbornly strong price growth remains despite the Federal Reserve’s continuing efforts to slow the economy by tightening monetary policy.
Inflation is down significantly from its June 2022 peak of roughly 9%, and the continued slowing of growth in core prices, in particular, will come as welcome news to the central bank. That will give policy makers room to hold interest rates steady at their next meeting on Oct. 31-Nov. 1, as is already widely expected.
But at the same time, the report was also strong enough that it likely will keep alive the possibility alive of one more interest-rate hike this year, which could come during the December meeting. The inflation result also comes close on the heels of September’s surprisingly strong jobs report, which suggested the economy would be able to withstand further tightening.
“While inflation is slowly edging lower, the strong labor market means that the threat of inflation resurgence cannot be ignored, keeping the Fed on its toes,” wrote Seema Shah, chief global strategist with Principal Asset Management. “The question around whether or not there will be one more interest rate hike is yet to be answered.”
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