Consumer Price Index report shows ongoing inflation risks

Inflation is no longer a crisis, but it hasn't fully gone away as a problem. Thursday's Consumer Price Index report helps explain why.

Why it matters: The latest data, paired with minutes of the last Fed meeting and last week's jobs report, make clear that no one should be particularly confident that much lower interest rates are imminent.

The big picture: Overall inflation kept trending lower, helped by a sharp drop in energy prices — the latest clue that steep price increases are in the past.

• CPI rose 2.4% in the 12 months through September — the smallest increase since early 2021. On a monthly basis, the index rose 0.2%.
• The Social Security Administration announced, based on the latest data, that beneficiaries will receive a 2.5% cost of living adjustment in January — an average of $50 per month.

Yes, but: Core CPI, excluding volatile food and energy, ticked up to 3.3% over the last year and has risen at a 3.1% annual rate over the last three months. Both numbers imply an inflation trend that has remained well above the Fed's target.

• Core services rose 0.4% for the month and are up 4.7% over the last year, also pointing to continued price pressure.

The intrigue: The firmer-than-expected core CPI figure comes despite signs of relief in housing. That has been the key category keeping inflation high — that was still the case in September, but price gains did cool.

• Overall shelter costs rose 0.2% last month, down from the 0.5% increase in August as rental price increases cooled. Economists have been waiting for slower rent gains apparent in private sector data to filter through to the official government data.
• This might be a sign that is finally happening, which — if continued — could help ease inflation further in the months ahead. But that's far from guaranteed; there have been head fakes in the past.

Between the lines: The Fed lowered interest rates by a jumbo half-percentage point last month. Minutes released on Wednesday from that meeting show more apprehension among officials than initially believed.

• "Some participants observed that they would have preferred a 25-basis-point reduction of the target range at this meeting," the minutes read — adding that others "could have supported" such a decision.

Zoom in: The preference to move gingerly in lowering rates is apparent in some recent Fedspeak.

• "While the upside risks to inflation have diminished, they have not vanished," Dallas Fed president Lorie Logan said in a speech Wednesday. "I continue to see a meaningful risk that inflation could get stuck above our 2 percent goal."

The bottom line: Odds overwhelmingly show the Fed is likely to cut interest rates by a quarter-percentage point at its Nov. 6-7 policy meeting.

• But futures markets are beginning to see a small chance the Fed won't cut at all, according to a tracker from the CME Group.