Inflation Slowdown Remains Bumpy, September Consumer Price Data Shows

Consumer prices grew at the same pace in September as they had in August, a report released on Thursday showed. The data contained evidence that the path toward fully wrangling inflation remains a long and bumpy one.

The Consumer Price Index climbed 3.7 percent from a year earlier. That matched the August reading, and it was slightly higher than the 3.6 percent that economists had predicted.

The report did contain some optimistic details. After cutting out food and fuel prices, both of which jump around a lot, a “core” measure that tries to gauge underlying price trends climbed 4.1 percent, which matched what economists had expected and was down from 4.3 percent previously. And inflation is still running at a pace that is much less rapid than in 2022 or even earlier this year.

Even so, several signs in the report suggested that recent progress toward slower price increases may be stalling out — and that could help to keep officials at the Federal Reserve wary.

The S&P 500 fell 0.6 percent and the yield on 10-year Treasuries rose on Thursday to 4.7 percent, as investors worried that September’s inflation report showed less progress than they had hoped for, both in rents and a measure of inflation that strips out volatile goods and services.

Fed policymakers have been raising interest rates in an effort to slow economic growth and wrestle inflation under control. They have already lifted borrowing costs to a range of 5.25 to 5.5 percent, up sharply from near-zero 19 months ago. Now, they are debating whether one final rate move is needed.

Given the fresh inflation data, economists predict that policymakers are likely to keep the door open to that additional rate increase until they can be more confident that they are well on their way to winning the battle against rising prices. Inflation has begun to flag, but the September data served as a reminder that it is not yet clearly vanquished.

“This report still suggests that we have stepped out of the higher inflation regime,” said Laura Rosner-Warburton, a senior economist at MacroPolicy Perspectives. Still, “we’re not out of the woods — there are still some sticky corners of inflation.”

Economists closely watch how much prices are increasing on a monthly basis to get a sense of how inflation trends are developing — and the changes in September offered some reasons for concern.

Price increases overall picked up by 0.4 percent in September from August. That was slower than 0.6 percent in the previous month, but it was still quicker than what policymakers would consider normal.

Some of the increase over the past month was driven by higher gas prices, which economists largely ignore because they jump around a lot.

But other details did catch analysts’ attention. In one potentially worrying sign, housing costs climbed at a relatively quick pace after a recent slowdown. Fed officials and Wall Street forecasters had been expecting a steady cool-down in rental inflation, because real-time trackers have been showing moderation.

And prices for hotel rooms, motor vehicle insurance and recreation services — which include sporting events — all climbed notably.

The pickup across a number of categories was enough to fuel concern that the marked slowdown in consumer price increases that occurred over the summer likely overstated progress.

“That summer of disinflation stuff was all about downside surprises,” said Omair Sharif, founder of Inflation Insights. “Now, there’s a lot of stuff that is surprising to the upside, and that’s probably the most concerning.”

The Fed is likely to take all of the changes into account as it thinks about the path ahead for interest rates.

Fed officials will meet next on Oct. 31 and Nov. 1. Investors widely expect them to leave interest rates unchanged in November, but the odds of a final rate increase in December nudged up after the report.

Wall Street now sees the chance that policymakers will lift rates before the end of the year as greater than 1 in 3, based on market pricing.

Either way, Fed officials have been clear that they plan to leave rates at a high level for some time, hoping that they will gradually trickle through to the economy, making it more expensive to borrow to buy a house or expand a business. That could help to cool demand, making it harder for companies to raise prices without losing customers.

So far, the economy has been surprisingly resilient in the face of higher borrowing costs. Consumer spending has remained solid, businesses continue to expand, and hiring was much stronger than economists had expected last month.

That has increased the chances that inflation could cool without a painful recession. And it suggests that American households are managing to shoulder the pain of higher prices — in part because they are getting jobs, pay raises, and other boosts to their income.

More than 71 million Americans receiving Social Security benefits will see their checks rise 3.2 percent next year to help them keep pace with inflation, the Social Security Administration said on Thursday. That’s down from the record-setting bump of 8.7 percent in 2023 amid rampant inflation.

Economic momentum is a good sign, but policymakers are hoping that it will not give companies the wherewithal to keep raising prices quickly. Big firms — including the Walt Disney Company, PepsiCo and the burrito chain Chipotle — have continued to announce increases.

Still, many economists expect the economy to cool in the months ahead, in part because of a recent and pronounced move in market-based interest rates.

The Fed sets short-term interest rates, but the longer-term rates that matter most to consumers respond to both policy moves and other economic and financial factors. The yield on the 10-year Treasury bond has moved up sharply in recent weeks, which could help to cool growth even without additional Fed action.

Given that, central bank officials have been clear that they will be patient as they consider future rate moves.

“We’re in this position where we kind of watch and see what happens,” Christopher J. Waller, a Fed governor, said during a talk this week. “The financial markets are tightening up, and they’re going to do some of the work for us.”

Susan Collins, president of the Federal Reserve Bank of Boston, said in a speech on Thursday that the fresh inflation report was “a reminder that restoring price stability will take time,” and suggested that rates might need to rise more.

“I believe we may be at, or very near, the peak for this cycle, although I would not take further tightening off the table yet,” she said.

Fed officials aim for 2 percent inflation over time, though they define that goal using a separate measure from the one released on Thursday. They prefer the Personal Consumption Expenditures index, which pulls from some of the same data but is calculated differently and released later in the month.

The P.C.E. inflation figures will be released on Oct. 27, just ahead of the Fed’s next meeting.

Santul Nerkar contributed reporting.