The Consumer Price Index (CPI) increased at an annual rate of 3% in September, falling short of economists' predictions. Analysts had anticipated a 3.1% rise, according to a survey by a financial data firm. The CPI tracks price changes in a selection of goods and services commonly purchased by consumers.

Despite the ongoing government shutdown, the Department of Labor released the September CPI data. This information is crucial for determining the annual cost-of-living adjustment for Social Security beneficiaries, which is set to be announced soon. However, this report may be the last inflation data available for some time, as the Labor Department is expected to face challenges in collecting data next month due to the shutdown.

Economists attribute the gradual increase in inflation partly to tariffs imposed by the Trump administration. While U.S. businesses are absorbing some of the costs, they are also passing on approximately 55% of these import taxes to consumers, leading to higher prices. Brandon Zureick, chief economist at an investment firm, noted, "Tariffs have put upward pressure on prices, particularly in the goods-producing sector of the economy."

The current inflation rate is significantly lower than the peak of 9.1% recorded in June 2022, which was the highest in 40 years. This spike prompted the Federal Reserve to raise interest rates. Higher borrowing costs can help control inflation by making loans more expensive, which may reduce consumer and business spending.

The recent inflation data complicates the Federal Reserve's upcoming decision on interest rates, with a meeting scheduled for October 29. Analysts suggest that the CPI report may support another rate cut. Lindsay Rosner from Goldman Sachs Asset Management stated, "There was little in today's benign CPI report to 'spook' the Fed, and we continue to expect further easing at next week's Fed meeting."

Despite rising inflation, the job market is experiencing a slowdown in hiring. Fed Chair Jerome Powell highlighted this issue last month when the central bank implemented its first rate cut of 2025. Lower interest rates can stimulate the job market by making borrowing cheaper for businesses, encouraging expansion and hiring.

The combination of increasing inflation and a weakening job market presents a challenge for the Fed, which aims to maintain low inflation and unemployment. Zureick remarked, "We've been dangerously close to a zero level of job growth for a few months."

Given the Fed's focus on labor market risks, the higher CPI rate is not expected to alter predictions for a quarter-point rate cut at the upcoming meeting. Current estimates place the likelihood of a 0.25-percentage point cut at 98.9%, according to market analysis.