Inflation is up, but less than expected

Annual inflation heated up slightly in September, but not as much as economists expected, giving the Federal Reserve a clear path for widely expected rate cuts heading into their remaining meetings this year. 

Consumer prices rose 3% from a year earlier, the Labor Department said Friday. This was slightly more than August’s increase of 2.9%, and was the fastest pace since January.

Forecasts for the report estimated continued increases in inflation, with economists predicting a 0.4% month-over-month increase and 3.1% annual increase. The Federal Reserve meets next week and is expected to cut interest rates.

Wells Fargo economist Nicole Cervi is among those expecting a cut — despite the latest evidence that prices are still rising faster than the Fed’s 2% target. “Even if the monthly inflation data came in softer than expected,” the underlying trend is that “inflation remains persistent,” she said.

The Social Security Administration (SSA) later on Friday said that payments to recipients will increase by 2.8% next year, or an increase of about $56 per month starting in January.

Gas prices jumped 4.1% just in September from the previous month, a major driver of inflation last month. Grocery prices rose 0.3%, less than in August, and are 2.7% higher than a year ago.

The issues of affordability and the cost of necessities are gaining in political importance. Concerns over the costs of rent and groceries have played a key role in the mayoral race in New York City.

Even as inflation has fallen sharply from its peak of 9.1% more than three years ago, it remains a major concern for consumers. About half of all Americans say the cost of groceries is a “major” source of stress, according to an August poll by The Associated Press-NORC Center for Public Affairs Research.

High inflation was one of the things that helped propel Donald Trump back into the White House last November, and while Americans understand that there is no magic wand that can make inflation go away, if inflation doesn’t improve, or gets worse, then President Trump may soon find himself being politically damaged by inflation in the way that former President Biden was.