INSIGHTS

On October 28, 2025

Benign Inflation Could Help Keep the Federal Reserve Cutting Rates

Consumer prices rose 0.3% in September, taking headline Consumer Price Index (CPI) from 2.9% to 3% year-over-year. Core prices rose 0.2%, taking core CPI down from 3.1% to 3%. Both measures came in slightly lower than expected. In an environment in which the Federal Reserve (Fed) has limited data to run on, we believe this print will help keep the central bank on track to continue cutting rates.

Energy prices pushed headline CPI up

The energy component of the index rose 1.5% in September (the fastest since December 2024), driven by a 4.1% rise in gasoline prices. The other relatively volatile category, food, rose 0.2%, with four of the six major grocery food groups posting price increases.

 Figure 1: Energy helped nudge headline CPI higher

Source: Bureau of Labor Statistics, Macrobond, Insight, October 2025

Core goods inflation was relatively benign at 0.2% in September, following 0.3% in July and August. Insight Investment’s synthetic, tariff-sensitive goods index* rose 0.3% in September with small categories such as apparel, furniture and bedding, and sports vehicles showing some significant price rises.

Figure 2: Tariffs have been helping to push core goods inflation up modestly

Source: Bureau of Labor Statistics, Macrobond, Insight, October 2025

Core services categories continued gradual moderation

The stubborn, core services components continued to trend sideways to slightly lower. Shelter (the largest component of the index) rose 0.2% in September, leaving it unchanged year-over-year at 3.6% (Figure 3). We expect the measure to continue easing gradually, in line with private rental indices.

Elsewhere, “super-core” services (which exclude food, energy and shelter categories) also continued to trend sideways, although transportation services notably eased, driven by a -0.4% fall motor vehicle insurance prices in September.

Figure 3: Core services have been easing gradually

Source: Bureau of Labor Statistics, Macrobond, Insight, October 2025.

Conclusion: A relatively benign CPI could help justify continued rate cuts

Arriving during a period in which the U.S. government shutdown has suspended other key data releases, this CPI report likely takes on higher importance than usual for the Fed.

Looking ahead, the majority of price quotes for the October CPI report will likely be missing, even if the government were to swiftly reopen, raising questions about its publication.

The lack of available data will complicate the Fed’s efforts to calibrate monetary policy. However, this report offers some comfort that core services components continue to moderate. We expect the central bank to “look through” tariff inflation as long as it appears to be transitory. Given challenges to the labor market, we expect the Fed will be minded to continue cutting rates consistently over the final two meetings of the year and into the first quarter of 2026.

CRN: 2025-1028-12970 R

* Bureau of Labor Statistics, Macrobond, Insight, September 2025. The index includes goods with high levels of imported content, such as apparel, consumer electronics, toys, household furnishings and supplies, motor vehicle parts and equipment, and is weighted according to the CPI basket weights.

The opinions and views of this commentary are that of Insight Investment and are not necessarily those of Advisors Asset Management. Any forecasts or opinions expressed herein are Insight Investment's own as of October 24, 2025, and subject to change without notice.