What To Expect From Thursday’s Inflation Report

The cost of living likely didn’t rise much in September, as a continuing trend of cooler inflation was a relief for household budgets and the economy.

Forecasters expect Thursday’s Consumer Price Index report to show consumer prices rose 0.1% in September, down from a 0.2% increase in August, according to a survey of economists by Dow Jones Newswires and The Wall Street Journal. That would mean consumer prices rose 2.3% over the past year, down from a 2.5% annual increase in August. That would be a fresh low since February 2021, and one step closer to the Federal Reserve’s goal of a 2% annual rate. 

“September will be another good month for inflation,” Bernard Yaros, lead U.S. economist at Oxford Economics, wrote in a commentary.

Should the report match expectations, it would be the latest evidence showing inflation is back to running at a mild tempo after surging in the immediate aftermath of the pandemic. Cooling inflation can give household budgets a break in two ways: shoppers won’t see rapidly rising price tags, and borrowing costs for all kinds of loans fall as the Federal Reserve rolls back the high interest rates it maintained in order to push down inflation.

Cooler Inflation Won’t Push Down Borrowing Costs Much

Although cooler inflation could help justify the Fed’s rate cuts, policymakers may be in no hurry to slash rates quickly like they did in September. The job market remains resilient despite high interest rates, meaning that the Fed is under little pressure to cut rates quickly to bolster the economy.

Financial markets have ruled out a super-sized rate cut when the central bank’s policy committee next meets in November, according to the CME Group’s FedWatch tool, which forecasts rate movements based on fed funds futures trading data. Now market participants have priced in a smaller 0.25 percentage point cut, with a 15% chance that the Fed will leave interest rates as they are.

There are a few areas where prices likely still rose rapidly, keeping “core” inflation, which excludes volatile prices for food and energy, running hotter than the Fed would like. Prices for used cars likely rose 1% over the month, while airline tickets increased 0.5%, according to a forecast by economists at Goldman Sachs. Meanwhile, increases in housing and car insurance are likely leveling off after surging earlier in the year.

The median forecast by economists expects core prices rose 0.2% in September after a 0.3% increase in August, making for a 3.2% rise over the year, the same annual rate as the month before.