US Inflation Eases to 3.0% in September, Fueling Doubts Over Further Fed Rate Hikes

Core Categories Show Signs of Cooling Core inflation cooled to 0.2% month-on-month after two consecutive 0.3% readings, reflecting easing in the shelter and services categories. Shelter costs, which carry significant weight, rose just 0.2%, while owners’ equivalent rent ticked up only 0.1% — the lowest increase since early 2021. Motor vehicle insurance and used car prices both declined by 0.4%, adding to disinflationary signals. Notably, medical care services rose 0.2%, reversing the previous month’s decline.

Food Inflation Remains Stable Food prices increased by 0.2% in September, following a stronger 0.5% gain in August. The food-at-home index rose 0.3%, led by increases in nonalcoholic beverages and cereals. Conversely, dairy prices declined by 0.5%, while the food-away-from-home index posted a modest 0.1% rise. On a 12-month basis, food inflation remains elevated at 3.1%, with meats and beverages leading gains.

Year-Over-Year Inflation Still Above Target Annual core inflation held at 3.0%, unchanged from the previous month. This figure remains significantly above the Federal Reserve’s 2% target, although recent month-on-month figures suggest a gradual cooling. The Fed is likely to view this report as constructive but insufficient for immediate policy shifts, especially with sticky components like shelter and services still posting gains.

Market Forecast: Cautiously Bearish for USD Given the softer-than-expected CPI figures and declining momentum in core categories, market sentiment is likely to lean bearish on the US dollar in the near term. Reduced inflationary pressure diminishes the case for further rate hikes, potentially limiting upside for Treasury yields and easing support for the greenback. Traders may begin to reprice expectations for the Fed’s policy path heading into year-end.