Inflation: Consumer price increases in September come in hotter than estimates

A closely watched report on US inflation showed consumer price increases ticked lower on an annual basis during the month of September but "core" prices remained sticky, according to the latest data from the Bureau of Labor Statistics released Thursday morning.

The Consumer Price Index (CPI) increased 2.4% over the prior year in September, a slight deceleration compared to August's 2.5% annual gain in prices. The yearly increase came in hotter than economist expectations of a 2.3% annual increase.

The index rose 0.2% over the previous month, matching the increase seen in August and also hotter than economist estimates of a 0.1% uptick.

On a "core" basis, which strips out the more volatile costs of food and gas, prices in September climbed 0.3% over the prior month, stronger than economist expectations of a 0.2% uptick, and 3.3% over last year. Core prices rose 0.3% month over month and 3.2% on an annual basis in August.

Inflation, although moderating, has remained above the Federal Reserve's 2% target on an annual basis.

But the Federal Reserve has recently shifted its attention to the state of the labor market, which has been surprisingly resilient in the face of high interest rates.

Data from the Bureau of Labor Statistics released Friday showed the labor market added 254,000 payrolls in September, more additions than the 150,000 expected by economists, while the unemployment rate fell to 4.1% from 4.2%.

The strong report altered expectations about the path forward for interest rates, with traders now pricing in a smaller 25 basis point cut in November rather than another jumbo 50 basis point cut.

Minutes from the Federal Reserve released Wednesday showed that while a "substantial majority" of officials favored the larger cut at its September meeting, "some" wanted the smaller option, citing a resurgence in inflation as a primary concern.

Immediately following Thursday's inflation data, markets were pricing in more than an 80% chance the central bank cuts by 25 basis points in November compared to just a 50% shot one month ago, per the CME FedWatch Tool.

Alexandra Canal is a Senior Reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and email her at alexandra.canal@yahoofinance.com.

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