America’s inflation is getting back to normal. But price problems persist

By Alicia Wallace, CNN

(CNN) — America’s inflation continued to slow in September, reaching a fresh three-and-a-half-year low and coming in at a pace that’s similar to what was seen in 2017 and 2018, according to data released Thursday.

The Consumer Price Index, which measures price changes across commonly purchased goods and services, was 2.4% for the 12 months ended in September, slowing from a 2.5% annual rate in August, according to the latest Bureau of Labor Statistics report.

That’s less of a cooldown than economists were expecting – FactSet consensus estimates were for a 2.3% rise – however, inflation as measured by the CPI is at its slowest rate since February 2021.

But the latest snapshot also showed how challenging it is to rein in high inflation: Some price hikes remained stubborn, while other categories highlight how factors such as weather, disease and war could jolt costs higher — albeit likely temporarily.

High inflation, rather, is “dying, but not dead,” noted Olu Sonola, Fitch Ratings’ head of US economic research.

On a monthly basis, prices rose 0.2%, in line with the advance in August but faster than economists’ projections of 0.1%.

A jump in food prices — a sweeping bird flu has caused egg prices to spike — combined with ongoing, but easing, shelter-related inflation drove the overall CPI higher last month, despite falling gas prices, BLS said.

Stripping out food and energy costs, categories that are typically quite volatile, core CPI rose 0.3% in September, bringing the annual rate up to 3.3% after holding firm at 3.2% the past two months.

So that’s a mixed bag of data for the Federal Reserve to pore over as it considers whether to lower its interest rates again early next month.

“September’s CPI report has good news and bad news for the Fed,” Eugenio Aleman, Raymond James’ chief economist, wrote in a note issued Thursday. “The good news is that shelter costs slowed down to 0.2%, month-on-month, and 4.9%, year-over-year. However, it also showed that there are still plenty of upside risks for inflation going forward.”

Stubbornly high housing inflation eases

The core CPI measurement was expected to be stubbornly high for the month, a reflection of persistent housing inflation and a handful of temporary lifts in prices for certain categories such as insurance, lodging costs and vehicle prices.

Still, economists say that inflation is headed in the right direction, because the factors that pushed prices higher during the pandemic era have largely faded while demand has slowed to more normal levels.

The “shelter” category, which accounts for more than one-third of the overall CPI, has been the biggest obstacle to inflation’s descent. However, economists say it’s only a matter of time before that hurdle topples because of a lag in how rents and housing-related costs are tabulated.

Thursday’s report provided a glint of hope: Housing inflation slowed to its lowest annual rate since February 2022.

“Shelter is the silver lining to all of this,” Tyler Schipper, associate professor of data analytics and economics at St. Thomas University in St. Paul, Minnesota. “It’s one data point, just like the pop up in food prices is a singular data point, but it’s at least a hopeful data point in terms of where [the Fed is] hoping shelter inflation goes. And that can be the main driver of what gets inflation actually back down in your 2% goal.”

While it’s a waiting game for shelter inflation’s data mechanics to come back in line with what’s happening on the ground, Thursday’s CPI report showed that price pressures still sting for consumers in certain areas. And it also gave a hint of how large-scale events could cause short-term spikes in certain prices.

Notably, egg prices jumped higher last month, this time by 8.4% as a deadly bird flu cripples supply. Annually, eggs are up 39.6%.

However, overall grocery prices are running well below overall inflation and are up 1.3% for the year ended in September.

Risks continue to persist

Still, the outlook for overall inflation is much improved from where it was two weeks ago, when a massive dockworkers strike threatened to choke off supply at more than 30 US ports. That can was kicked down the road until at least mid-January as negotiations continue.

Still, the aftershocks of devastating hurricanes, wars, geopolitical flare-ups, and even US policy actions could present risks to the current disinflationary path, economists say.

In the coming months, the category facing some of the greatest pressure could be energy prices, Satyam Panday, chief economist for S&P Global Ratings, told CNN.

“Energy price is a key risk to our own baseline narrative of this disinflation,” he said. “So, it may not be a straight line of disinflation; it’s going to be a bumpy path to more normal.”

The biggest inflationary risk could come if Donald Trump is elected president and he is able to impose his plan of immense tariffs, Oliver Allen senior US economist for Pantheon Macroeconomics, told CNN.

But for now, the inflation outlook is looking positive, Allen said.

“The vast majority of forces that pushed up inflation (commodity prices, strong labor market of wages and rehiring, rent spikes, consumer spending, large margins, loose monetary policy, and fiscal policies of the Trump and Biden administrations), they’ve all pretty much faded or are falling quite rapidly,” Allen said. “Although, you can’t rule out the effect you might see from some idiosyncratic price risk here or there.”

On deck: More data. And an election

With less than four weeks until Election Day, easing inflation pressure has also changed the conversation on the campaign trail.

In September, an estimated 79% of campaign ads for former President Donald Trump highlighted inflation, according to data from AdImpact. In the first week of October, just 10.5% of ads for Trump, the Republican candidate, mentioned inflation.

But for Vice President Kamala Harris, who served in an administration during which the cost of living rose the most in decades, the issue is still top of mind. On the eve of the new data, Harris unveiled a new ad outlining policies she’d pursue to keep bringing inflation down.

Thursday’s report was the last CPI to land before both the November presidential election and the Federal Reserve’s next policymaking meeting.

Other key inflation data will follow: The latest read on wholesale inflation will land Friday; while the Personal Consumption Expenditures price index, the most comprehensive look (and the Federal Reserve’s preferred gauge), will publish at the end of the month.

Those likely will take a backseat to the October jobs report, which is due out November 1. With inflation mostly tamed and moving in the right direction, Fed officials have zeroed in on the health of the labor market.

A robust jobs report for September helped ease fears that the US employment landscape was crumbling.

The October jobs report, although immensely critical, also will be quite noisy: The month’s employment numbers are likely to be depressed by an ongoing Boeing strike as well as the ripple effects from Hurricanes Helene and Milton.

On Thursday, a separate report from the Labor Department showed some hints of what’s to come: First-time claims for unemployment benefits spiked last week to their highest level since August 2023, a reflection of strike- and hurricane-related effects.

This story has been updated with additional context and developments.

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CNN’s Kayla Tausche contributed to this report.