Aerial view of a shipping yard at sunset.

September CPI report: Keeping the Fed on track for cuts

Market response

October 24, 2025 | 2 min read

Christian Floro, CFA, CMT

Market Strategist

Magdalena Ocampo

Market Strategist

Despite a delayed release, caused by the U.S. government shutdown, September consumer prices came in slightly cooler than expected, bringing the annual headline rate to 3.0%, a mild increase compared to the prior month. Core inflation, which excludes food and energy prices, also rose 3.0% over the past year. While the typically volatile energy prices were a significant driver of headline prices, the notable moderation in shelter costs suggests some easing in persistent inflation pressures.

Notably, today’s CPI report was originally scheduled for October 15 but was delayed given the ongoing government shutdown. While most other government data releases, including subsequent CPI reports, will likely remain suspended until the end of the shutdown, the BLS noted that this month’s report was completed to allow the Social Security Administration to calculate annual cost-of-living adjustments on a timely basis. With about two-thirds of data collection done manually in the calculation of the CPI report, there remains considerable uncertainty on the timing and data quality of subsequent reports, even once the government re-opens.

Report details

Monthly headline inflation rose 0.3% in September, slightly lower than expected, which brought the annual rate to 3.0%, from 2.9% prior. Core inflation, which strips out food and energy, was also cooler than expected, increasing 0.2% for the month, bringing the annual rate to 3.0%, from 3.1% prior. The combination of the gradual impact of tariffs and a moderation in shelter costs helped keep overall prices contained.
The highly volatile energy category, which rose 1.5%—more than double last month’s 0.7% increase—was the primary driver of prices this period, with gasoline prices jumping 4.1%, marking the largest monthly increase since August 2023. Offsetting this strength was a moderation in food prices, rising just 0.2%. Food away from home posted its smallest gain since February 2024 at 0.1%, potentially signaling waning traffic at restaurants amid a notable softening in restaurant prices, which grew at the slowest pace since the pandemic.
Core inflation, which continues to be driven by services prices, showed encouraging signs of moderation amid a slowdown in shelter costs, which rose 0.2% in the period. Indeed, typically the largest contributor to core inflation, owner’s equivalent rent increased only 0.1%, the slowest pace since January 2021.
Tariff-sensitive categories showed mixed but ongoing price pressures, with apparel, personal care products, furniture, and other related household items continuing to see upward price increases. However, price decreases in electronics and technology categories offset these price gains. As a result, while the impact of tariffs remains visible and is still gradually feeding into prices, its overall impact on core goods prices remains relatively contained.
The Fed's preferred supercore inflation measure increased by 0.4% from last month’s 0.3% gain, keeping the annual rate flat at 3.2% from last month. The supercore inflation measure, which excludes shelter from core services and is primarily driven by wage costs, could see renewed upward pressure if labor supply issues broaden sufficiently. However, this has not yet been an issue given the ongoing weakness in labor demand.

Policy outlook

Despite ongoing tariff-related pressures feeding into consumer prices, the pass-through remains gradual, reducing concerns of runaway inflation. Encouragingly, core services prices continue to show signs of easing, helped in part by the moderation in owners’ equivalent rent, leading to a CPI release today that came in cooler than expected. With only a limited number of government data releases before next week’s FOMC meeting, today’s report carries added significance. And while annual core inflation remains at 3%, still above the Fed’s 2% target, the absence of an upside surprise likely solidifies expectations for a rate cut next week.

Looking ahead, uncertainty may rise. The White House has indicated that the October inflation report may not be released next month, which increases the weight placed on today’s figures and raises the risk that policymakers will be making decisions with less clarity on the near-term inflation trajectory.

Macro views

Disclosure

Investing involves risk, including possible loss of principal. Past performance is no guarantee of future results.

Views and opinions expressed are accurate as of the date of this communication and are subject to change without notice. This material may contain ‘forward-looking’ information that is not purely historical in nature and may include, among other things, projections and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader.

The information in the article should not be construed as investment advice or a recommendation for the purchase or sale of any security. The general information it contains does not take account of any investor’s investment objectives, particular needs, or financial situation.

Insurance products and plan administrative services provided through Principal Life Insurance Co. Principal Funds, Inc. is distributed by Principal Funds Distributor, Inc. Securities are offered through Principal Securities, Inc., 800‐547‐7754, member SIPC and/or independent broker/dealers. Principal Life, Principal Funds Distributor, Inc., and Principal Securities are members of the Principal Financial Group^®, Des Moines, IA 50392.

4934651