U.S. consumer prices rise less than expected in September, offering a boost to rate-cut hopes

24 October 2025

In September 2025 the U.S. Bureau of Labor Statistics reported that the Consumer Price Index (CPI) rose by 0.3 percent from the previous month and 3.0 percent over the past year both figures coming in slightly under economists’ expectations of 0.4 percent month-on-month and 3.1 percent year-on-year.

While the headline reading shows inflation is still present, much of the pressure has eased. The monthly increase was driven principally by a 4.1 percent surge in gasoline prices, yet this was partly balanced out by slower gains in rent, airfares, hotel rooms and used cars key components of the broader CPI that had previously shown more rapid inflation.

Core inflation, which excludes food and energy, also showed signs of moderation. On a month-on-month basis it increased only 0.2 percent (down from 0.3 percent in August), and on a 12-month basis it held at 3.0 percent, down from 3.1 percent prior. The small gain in owners’ equivalent rent just 0.1 percent in the month was noted as the smallest since early 2021.

From a market and policy perspective, the data provides relief for the Federal Reserve by giving the central bank more space to consider cutting interest rates without stoking inflation fears. Futures markets quickly priced in a near-100 percent probability of a 25 basis-point rate cut at the coming meeting, and elevated odds of further cuts in December and January.

That said, inflation remains above the Fed’s 2 percent target, and risks continue to linger. For instance tariffs on imports have begun to feed through to consumer prices goods such as apparel, appliances, furniture and bedding rose in September despite the broader slowdown. Analysts say firms that had absorbed tariff-driven cost increases are now at a tipping point where they may begin passing those costs on to consumers.

Another major wrinkle is the ongoing U.S. government shutdown, which has disrupted the collection of economic data and could delay future reports including possibly the October CPI release. The White House warned that because fewer surveyors can deploy during the shutdown, “there will likely not be an inflation release next month for the first time in history.” This data gap adds uncertainty to the Fed’s decision-making environment.

Consumers continue to feel the effects of rising costs despite the moderate readings. Grocery prices rose 0.3 percent in September and remain elevated compared to a year ago, and beef prices jumped 1.2 percent in the month and nearly 15 percent year-on-year, driven by droughts and feed-cost pressures. Meanwhile changes in the goods sector show that the full impact of tariffs may still lie ahead.

In sum, while the inflation reading for September is a welcome sign of moderation, it is far from a green light that inflation is “solved.” The delicate balance suggests that the Fed may lean into gradual policy easing but will also be watching closely for signs of renewed inflation pressure, particularly as tariff effects and labour-market dynamics evolve. The government’s data collection gap further complicates the outlook, underscoring that the next few months are likely to be as much about uncertainty as they are about relief.