It's a September surprise   monthly consumer price inflation came in a tick lower than forecast last month for both headline and core. But annual inflation is still rising. Bloomberg TV's Mike McKee explains the "K-shaped" CPI report, and what it means for the Fed.

Washington

The recent consumer price inflation report showed that both headline and core inflation rose slightly less than forecast, with notable restraint in housing, food, and car costs. The government's home price measure increased at its slowest rate since early 2021, prompting the White House to welcome the data and analysts to anticipate another Federal Reserve rate cut. However, annual inflation remains above the Fed's 2% target, with both core and headline inflation up 3% over the past year. 

The report highlighted a 'K-shaped' pattern, where some goods saw slowing inflation while others, such as furniture and clothing, experienced price jumps due to tariffs. The Fed is expected to proceed with rate cuts, viewing the tariff-related price increases as temporary. Due to a government shutdown, there will be no October inflation or jobs report, raising uncertainty about future monetary policy decisions.

What September's 'K-shaped' inflation report means for the Fed

It's a September surprise. Monthly consumer price inflation came in a tick lower than forecast last month for both headline and core, up three-tenths and two-tenths. Housing, food, and car costs were remarkably restrained. The government's measure of home prices rose at the slowest pace since January 2021. The White House hailed the numbers, and analysts say it confirms the Fed will cut rates again. But annual inflation is still rising, both core and headline, up 3% over the past 12 months. The Fed's target is 2%. Furniture, clothing, and personal care products jumped as tariffs fed through into prices. It's what economists call a K-shaped report, with slowing inflation for some products offsetting the tariff impact. And since the Fed thinks those import tax increases will be one-off moves, they'll go ahead and cut next week. The Fed's gonna keep on cutting rates. It's generally a better-than-expected report, but I think what it really shows is we have a K-shaped economy, and it's sort of a K-shaped CPI report. It also may be the last CPI report for a while. The White House says the government can't collect price data for this month because of the shutdown, so there won't be an October CPI report. There likely won't be a jobs number either. Whether the Fed can cut again in December is an open question. You can't know where you're going if you don't know where you are.

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Breakdown