By Lucia Mutikani
WASHINGTON (Reuters) -U.S. consumer prices likely rose solidly for a second straight month in September as households paid more for some tariff-sensitive goods, but firmer inflation was not expected to stop the Federal Reserve from cutting interest rates again next week.
The Consumer Price Index report from the Labor Department’s Bureau of Labor Statistics on Friday is also expected to show underlying inflation was elevated last month, though costs for services like air travel, hotel and motel rooms probably slowed after surging in August.
The CPI report is being published despite an economic data blackout because of the government shutdown in order to help the Social Security Administration calculate its 2026 cost-of-living adjustment for millions of retirees and other benefits recipients. It was initially due on October 15.
“The government shutdown may have altered the September CPI release date, but it hasn’t changed the stubborn state of inflation,” said Sarah House, a senior economist at Wells Fargo. “Beneath the surface, we expect goods inflation to stay elevated due to continued tariff pass-through, while an easing in primary shelter costs should help cool services inflation.”
The CPI probably increased 0.4% last month after advancing by the same margin in August, a Reuters survey of economists showed. Consumer inflation was also seen supported by higher gasoline prices. Food price gains likely moderated after accelerating in August. But beef and coffee prices probably remained high, reflecting droughts in prior years and tariffs.
In the 12 months through September, the CPI is estimated to have increased 3.1%, which would be the largest increase in 16 months, after advancing 2.9% in August.
Excluding the volatile food and energy components, the CPI is forecast to have increased 0.3% for a second straight month as tariffs lifted prices for some imported goods like apparel.
The tariff passthrough has been gradual as businesses worked through inventory accumulated prior to President Donald Trump’s sweeping duties and also absorbed some of the taxes.
Economists say companies have done so at the expense of hiring more workers and estimate consumers so far have absorbed about 20% of the duties.
BUSINESSES ARE ABSORBING SOME TARIFFS
“Operating margins are lower, so they’ve taken a piece of it there, but they also stopped hiring, and that has reduced their compensation costs from what they were planning,” said Brian Bethune, an economics professor at Boston College.
But inventories were drawn down in the second quarter and retailers like Walmart said they were seeing costs rising as they replenished stock at post-tariff price levels, something they expected to continue for the rest of the year.
“We continue to forecast a step-up in tariff passthrough during the next six months that amounts to about 60% of total tariff costs over this period,” said Andy Schneider, a senior U.S. economist at BNP Paribas Securities.
The boost to the so-called core CPI from higher goods prices was likely to be partially offset by moderate price gains for some services. Rent increases probably slowed after what economists described as abnormal rises in some cities in August.
The core CPI was forecast increasing 3.1% year-on-year in September for the third consecutive month.
The U.S. central bank tracks the Personal Consumption Expenditures price indexes for its 2% inflation target. The Fed is expected to lower its benchmark overnight interest rate by another 25 basis points next Wednesday to the 3.75%-4.00% range.
While investors and policymakers will welcome the reprieve from the official economic data blackout, concerns are rising over the quality of October’s CPI report, with potential spillovers to November, given the suspension of data collection.
Consumer prices are collected throughout the month, the bulk physically, and the shutdown means more than half of the October data is already missing, leading economists to question whether that report will be published when the shutdown ends.
During the 2013 government shutdown, about 75% of the CPI data was collected that October. The disruptions from the shutdown come as the Bureau of Labor Statistics is already dealing with resource constraints because of budget and staffing cuts that have led to the suspension of data collection for portions of the CPI basket in some areas across the country.
“If the shutdown lasts through the end of the month, and the BLS does not adopt new emergency methods, it seems unlikely that it could publish the CPI in the usual way because the data would not meet the typical BLS publication standards,” said Ronnie Walker, an economist at Goldman Sachs.
“If the BLS decides against leaving a gap in the time series, we see a few options for how it could estimate the October CPI, including attempting to collect prices retroactively where feasible and interpolating some October prices once data collection has resumed, though each potential solution has its own drawbacks.”
(Reporting by Lucia Mutikani; Editing by Andrea Ricci )
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