The consumer price index (CPI) was unchanged in September, the weakest month since January. Core (excluding food and energy) CPI rose 0.1%, which also marks a sharp slowdown in momentum from recent months. The year-on-year measures of the CPI and core CPI rose 1.7% and 2.4% respectively. That matches the year-over-year readings on inflation that we saw in August.
Increases in food prices were offset by lower prices at the gas pump. It was still too early to see the effects of recent tariffs. Prices for apparel, which will be hit hard by the latest round of tariffs, continued to fall on a month-to-month and year-over-year basis.
Much of the upward pressure on inflation was concentrated in services. Vehicle insurance, medical care, airfares and education costs all rose during the month. Shelter costs, a major problem for younger workers in the hottest job markets, continued to rise.
That reflects the return of business travelers to the market, which was affected by a pullback in discretionary spending on vacations in August. Tourism in New York was hit particularly hard as trade tensions mounted with China over the summer, according to the Federal Reserve’s Beige Book.
Inflation essentially held at the levels we saw in August, which is unwelcome news to most on the Fed who hoped for more of a warming trend. That, combined with a slowdown in wages and overall growth during the summer, is expected to nudge the Fed to cut rates again this year. The timing of that cut will depend on whether we get a ceasefire in the trade war with China.
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