Consumer price inflation accelerating, recent government report shows: CEI analysis

Today the federal government released inflation data on consumer prices dating back to the month of September (having been delayed due to the weeks-long government shutdown). CEI Senior Economist Ryan Young expects the Federal Reserve to nonetheless stick to its likely plan to cut interest rates next week:

“Economic data is still playing catch-up after the shutdown. With the Federal Reserve’s next interest rate decision coming up on December 10, we now have September’s personal consumption expenditures (PCE). This is the inflation indicator that the Fed uses for its policy decisions.

“Today’s news is not good. Year-over-year PCE inflation has been accelerating since April, which was when President Trump announced his Liberation Day tariffs. It now stands at 2.8 percent, up from April’s 2.1 percent. PCE’s 0.3 percent increase during the month of September is equivalent to a 3.6 percent annual inflation rate, which means that inflation is accelerating, not slowing down. The Fed’s target for PCE is 2.0 percent.

“Accelerating inflation would ordinarily encourage the Fed to either hold interest rates steady or even raise them. However, most observers are expecting the Fed to cut rates next week, due to a combination of tariff-related economic problems and presidential pressure.

“While a rate cut may provide some short-term labor market stimulus, it would also likely risk even higher inflation. Either way, some combination of high inflation and slow growth is in the forecast.”