Consumer Price Index September 2025

Inflation peekaboo not as frightening as feared 

• The September Consumer Price Index (CPI) report will be the only major economic release this month due to the ongoing government shutdown. The data was made available specifically to enable the Social Security Administration to determine the 2026 Cost of Living Adjustment (COLA).
  
  
• Headline CPI increased less than expected, up 0.3% month over month (m/m), as upward pressures from tariffs, energy and food prices were offset by lower shelter, used car and auto insurance prices. Core CPI advanced a modest 0.2% m/m as owners’ equivalent rent only rose 0.1% m/m – its smallest gain since January 2021. Consequently, headline inflation accelerated by 0.1 percentage points (ppt) to 3.0% year over year (y/y), now 0.7ppt above its post-pandemic low. Meanwhile, core CPI eased a tick to 3.0% y/y.
  
  
• While short-term inflation dynamics have firmed because of tariffs, the process has remained orderly and partially offset by cooling shelter cost inflation. On a three-month annualized basis, headline inflation and core inflation climbed to 3.6% in September while headline and core inflation firmed to 3.0% on a six-month annualized basis. 
  
  
• The impact of tariffs was evident in the September data, though the pass-through to consumer prices remains uneven and gradual. Apparel prices increased by the most in a year while new car prices posted their second largest gain in 2025 and food prices continued to rise after posting their highest gain since 2022 in August. Modest gains were observed across furniture, computers, toys and alcohol. While many businesses have absorbed cost pressures using pre-tariff inventories and narrower margins, these buffers are gradually eroding. We anticipate a cumulative shock from tariffs totaling 0.8ppt by early 2026.
  
  
• The Federal Reserve is expected to lower the federal funds rate by 25 basis points (bps) next week, to a target range of 3.75%-4.00%. The move will likely be supported by evidence of cooling labor market conditions, weakening business and consumer sentiment and the Fed’s judgment that the recent tariff-driven uptick in inflation has been milder than anticipated and is unlikely to persist beyond early 2026.

In the details

Energy prices rose 1.5% in September, fueled by a 4.1% surge in gasoline prices. Natural gas prices declined for the third consecutive month (-1.2%), while electricity prices fell 0.5%, marking the sharpest drop since 2023. This reprieve is likely to be short lived, as electricity prices are expected to rebound in the coming months amid grid strain from soaring data center energy demand. 

Food prices rose 0.2%, after a strong 0.5% advance in August. Grocery prices continued to rise, up 0.3%, following their largest gain since 2022 in August. Pressures were broad based across cereals, meats and beverages even as fruits and vegetables prices steadied following a 1.6% surge in August. Restaurant prices rose a modest 0.1% – the smallest advance since February 2024. Overall, grocery price inflation is now clearly on the rise, reaching 2.7% y/y from a low of 0.9% in August 2024, while restaurant price inflation has remained relatively steady, hovering between 3.7% and 3.9% over the past six months.

Core CPI rose less than expected in September, up 0.23% m/m, with the details revealing offsetting pressures across categories. 

Core goods prices climbed 0.2%, following a 0.3% advance in August. The influence of tariffs remained apparent, but uneven. Apparel prices surged 0.7% – the largest gain since October 2024. Household furnishings edged up 0.2% with appliance prices rising 0.8% m/m. Furniture (+0.9%) and other household equipment (+0.3%) prices continue to reveal the cost pass-through from tariffs. Similarly, recreational goods (+0.4%) and alcohol (+0.2%) prices point to businesses attempting to protect their margins and pass on some of the tariff-induced cost pressures.

Meanwhile, car prices rose 0.2% following their largest gain in eight months in August. This was partially offset by lower used car prices, falling 0.4%.

Core services prices rose just 0.2% m/m in September, easing from a 0.3% gain in August, reflecting further moderation in underlying inflation pressures. Shelter costs advanced a modest 0.2%, after an unusually strong 0.4% increase in August. Notably, owners’ equivalent rent edged up only 0.1% — the smallest monthly gain since January 2021 — signaling persistent disinflationary momentum in housing. Rents also rose 0.2%, near the lower end of their post-pandemic range.

On a y/y basis, shelter inflation cooled to 3.6%, its lowest since October 2021, and only slightly above the pre-pandemic pace of 3.5%. Rent inflation eased to 3.4% y/y, below its 2019 range of 3.7%-3.8%, while owners’ equivalent rent inflation moderated to 3.8% y/y, just above the 3.4% pace in 2019.

By contrast, travel-related services remained a source of price pressure. Airfares surged 2.7% m/m, following consecutive gains of 5.9% in August and 4.0% in July, while hotel prices climbed 1.7% m/m. Compared with a year earlier, airfares are up 3.2%, underscoring continued strength in post-pandemic travel demand.

It now seems increasingly likely that the Bureau of Labor Statistics (BLS) will forgo the October CPI release, given the ongoing shutdown. CPI data are gathered over three 10-day collection windows, and at least one complete cycle is needed to produce a reliable estimate. The BLS is expected to shift its focus to the November report, assuming the government shutdown ends in the coming days.

The views reflected in this article are the views of the author(s) and do not necessarily reflect the views of Ernst & Young LLP or other members of the global EY organization.