The lone shutdown economic report has a tariff silver lining
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Illustration: Aïda Amer/Axios
There is good news in the lone economic report of the shutdown: Inflation was benign in September, with little sign tariffs are igniting a nationwide price shock.
Why it matters: Within months, tariffs rose to the highest in a century — yet companies so far are holding the line on consumer prices in ways few outside of the White House expected.
- "Much like a Sherlock Holmes story, inflation is the dog that didn't bark," Chris Zaccarelli, chief investment officer at Northlight Asset Management, wrote in a client note.
By the numbers: The shutdown-delayed report showed that the Consumer Price Index and the core measure that strips out food and energy costs rose 3% in the 12 months through September.
- Economists expected that the overall CPI would rise more from the 2.9% in August.
- Core CPI actually ticked down.
Zoom in: The report shows that disinflationary trends were intact in the housing sector, a massive category in the CPI that has kept upward pressure on overall inflation.
- Shelter rose just 0.2% in September, down from the 0.4% increase the prior month. Owners' equivalent rent — how the Bureau of Labor Statistics measures inflation for homes that people own — saw the smallest price increase in almost 5 years.
The big picture: The report amounts to a bright green light for the Fed to cut interest rates for the second time this year following its two-day policy meeting that ends on Wednesday, and tilts things toward an additional cut in December.
- "This will be framed as an insurance cut, with hopes that by December the shutdown is over and the Fed has a clearer read on jobs," Fitch Ratings economist Olu Sonola wrote, noting that tariff passthrough to consumers "generally remains muted."
Yes, but: Inflation is still uncomfortably high for Fed officials. Over the last three months, core CPI is up an annualized 3.6%, compared to the 3.1% rate in the same period a year ago.
Between the lines: Americans likely still feel sticker shock with many expenses, with no guarantee that tariff-related price increases will remain moderate.
- Retail coffee prices are up 19% compared to a year ago, at least in part because of President Trump's tariffs.
- Utility prices fell in September, but are up nearly 12% over the past year.
The bottom line: The cooler-than-expected inflation report offered a small window into the economy's health last month.
- Economic policymakers won't get much more information for some time, as the government shutdown drags on and delays key reports.
