Inflation rose one-tenth of a percentage point to 2.8% for the year ending in September, according to a hotly anticipated release of the Federal Reserve’s preferred inflation gauge.
The Friday report by the Bureau of Labor Statistics comes after the longest government shutdown in history delayed the release schedule of key economic reports.
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The report shows that inflation is still stubbornly high. That is a political problem for President Donald Trump, as voters continue to cite the cost of living as their main concern. It is also a headache for the Fed, which is also trying to prevent the labor market from deteriorating.
On a month-to-month basis, PCE inflation increased by 0.3%.
Core inflation, which strips out volatile food and energy prices, fell one-tenth of a percentage point to 2.8% on an annual basis. Core inflation was 0.2% on a monthly basis.
Olu Sonola, head of U.S. economic research at Fitch Ratings, said that despite the backward-looking nature of the report, it offered some good news that inflation is tame and in line with expectations. Sonola noted that the Fed is set to meet this month and make a decision on whether to lower interest rates.
“The resilience of the U.S. consumer remains a critical pillar of broad-based economic growth, even amid post-tariff inflation pressures and weak sentiment,” Sonola said. “For the Fed’s decision next week, this likely bolsters the case for a rate cut if the focus stays on a weakening labor market amid moderate inflationary pressures.”
The Fed’s goal is 2% annual inflation, a target that the Fed has not been able to achieve since inflation began taking off in early 2021.
The Fed hiked interest rates to historic levels in response to the mounting inflation of the past few years, but as inflation has begun to slowly move to a healthier level, the central bank has begun slowly lowering its rate target.
Because of the shutdown-induced data blackout, the lack of inflation data has made the Fed’s job more challenging and has created further uncertainty in the markets.
The release of the most closely watched inflation gauge, the consumer price index, was canceled for October, although some information for that month will be included in the November release of the CPI, which is set for next week.
Despite the shutdown, the BLS did release the September CPI data, which showed inflation rose 3% on an annual basis — a full percentage point above the Fed’s target.
The Fed is walking a tightrope when it comes to inflation and interest rates. On the one hand, there are signs that the labor market is gradually slowing, which would typically prompt a softer monetary policy stance. On the other hand, inflation is still too high, which, all else being equal, would prompt tighter monetary policy.
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The economy added 119,000 jobs in September, and the unemployment rate ticked up a tenth of a percentage point to 4.4%, the BLS said in its most recent jobs report.
That headline number was better than expected, but there were also downward revisions to past months, which showed the labor market has been in worse shape than was previously reported.
