Inflation is way down from last summer. But it's still too high for many.

Inflation is headed in the right direction but the road remains bumpy.

Consumer price increases stayed high in September after picking up over the summer as steady gains in rent and other services offset another decline in used car prices and a smaller rise in gasoline and food costs.

Inflation data this week

Prices overall rose 3.7% from a year earlier, similar to August's increase, according to the Labor Department’s consumer price index.  On a monthly basis, prices increased 0.4% following a 0.6% rise in August that was fueled by a surge in pump prices.

What is core inflation right now?

Core prices, which strip out volatile food and energy items and which the Federal Reserve watches more closely as it weighs interest rate changes, remained high. They rose 0.3% last month after 0.2% bumps over the summer. The advance still lowered the annual increase to 4.1% from 4.3% in August, marking the smallest gain since September 2021.

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How long will it take for inflation to go down?

Annual inflation has slowed significantly after hitting a 40-year high of 9.1% in June 2022, including a sharp drop to 3% in the first half of 2023. But since then, the cost of some goods and services has accelerated or pulled back more slowly, pushing up the yearly rise.

Prices for items such as used cars and furniture have dropped as pandemic-related supply-chain snarls have been resolved. But the cost of services such as rent, car repairs and auto insurance, have continued to drift higher in part because of briskly rising employee wages.

As a result, driving down inflation to the Fed’s annual 2% target is becoming a tougher slog. Barclays expects inflation broadly to dip to 3.3% in December and 2.6% at the end of 2024. Core price gains are projected to drift down to 3.7% at the end of the year and 2.8% at the close of 2024.

Will the Fed raise rates again?

Barclays expects the Fed to raise its key interest rate once more this year, by a quarter percentage point, after lifting it by 5.25 points in 16 months.

But other economists say tumbling wholesale costs will prompt a faster pullback in inflation.

"Overall, there is nothing here that will convince Fed officials to hike rates at the next...meeting, and we continue to expect a more rapid decline in inflation and weaker economic growth to result in rates being cut much more aggressively next year than markets are pricing in," says economist Andrew Hunter of Capital Economics.

How did the Dow Jones react?

Stocks were mixed in late morning trading as investors digested the uncertain odds of another Fed rate increase. The Dow Jones industrial average was down about 70 points, or 0.21% while the S&P 500 index was up 2 points or 0.05%.

Households, meanwhile, are still struggling. Although price increases are moderating, costs are still high and many Americans say they aren’t feeling much relief. 

Stanley Novack, 78, of Valencia, California, says he’s most frustrated by high gas and grocery costs. “It’s out there, wherever you go,” says Novack, who is semi-retired and works part-time as a hotel and restaurant consultant. “We’re not seeing it easing at all.”

He says he pays $6.50 a gallon for gas in California and as much as $135 for weekly groceries for him and his wife, up from $100 before the pandemic. “You just have to deal with it,” he says.

Will gas be cheaper in the future?

Gasoline prices rose 2.1% in September after surging 10.6% the previous month and they’re up 3% from a year earlier. Pump prices are well below their $5 peak in summer 2022 and are likely to move lower in the short term following the busy summer driving season despite the Israel-Hamas war, which has pushed up oil prices.

Are food prices declining?

Grocery prices rose more modestly, inching up 0.1% and lowering the yearly increase to 2.4%. The cost of commodities such as wheat and corn generally have fallen as major producers Ukraine and Russia have found alternative shipping routes that skirt their 18-month war.

Last month, the price of breakfast cereal fell 0.5%, while rice and fish both slid 1.3%.

But some proteins moved higher. Bacon rose 4.8% following a 4% rise in August; uncooked ground beef increased 0.6%; and eggs jumped 0.9% after a string of declines.

Will rent go down in 2024?

Rent, which has been the biggest inflation driver, rose a sturdy 0.5% for the second straight month, though that’s down from a spate of stronger gains. That nudged up the yearly rise to 7.4%. Economists expect rent increases to pull back, based on new leases, but that shift has been slow to filter through to existing leases.

Generally, the pattern of rising service costs fueled by healthy wage growth and falling goods prices continued last month.

Car repair costs rose 0.2%; auto insurance climbed 1.3%; and hotel rates leaped 3.7%. A key measure of service costs, excluding housing, that the Fed is following closely jumped 0.6%, says Nationwide economist Kathy Bostjancic

Meanwhile, used car prices fell 2.5%; clothing dropped 0.8%; and furniture declined 1.2% as supply chain troubles eased further.

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Curious about inflation? We've got you covered.

USA TODAY explores the questions you and others ask about inflation and how it affects your life, from "What is inflation?" to "What happens during a recession?" For more answers to your questions about today's report and other economic trends, keep reading:

COLA 2024

Social Security recipients will get 3.2% more in their checks next year, a cost-of-living adjustment, or COLA, based on Thursday's consumer price report showing that annual overall inflation remained at the same level as the previous month.

The 3.7% rise in overall prices is nearly twice the 2% target favored by the Federal Reserve. But inflation has been mostly trending down, leading to the modest Social Security COLA increase.

What’s the difference between CPI and PCE?

Major differences, according to the Cleveland Fed, are:

• Both indexes calculate the price level by pricing a basket of goods, but their baskets aren’t the same.
• CPI is based on a survey of what households are buying; the PCE is based on surveys of what businesses are selling.
• CPI only covers out-of-pocket expenditures on goods and services purchased. It excludes other expenditures that are not paid for directly, for example, medical care paid for by employer-provided insurance, Medicare, and Medicaid. These are, however, included in the PCE.
• PCE accounts for substitutions, which happens when consumers trade down or buy less during times of high inflation. For example, if the price of bread goes up, people buy less bread, and the PCE uses a new basket of goods that accounts for people buying less bread. The CPI uses the same basket as before.
• CPI tends to run “hotter,” or higher, than PCE.

How many times has the Fed raised rates?

The Fed raised its key rate at 10 meetings in a row starting in March 2022, the most aggressive run of rate hikes in four decades. It paused that streak in June, leaving the benchmark federal funds rate where it stood, but implemented another increase the following month lifting the rate by a quarter point to a range of 5.25% to 5.5%. 

How does raising rates lower inflation?

The federal funds rate is what banks pay each other for overnight loans. If that rate rises, banks typically pass along that extra cost, meaning it becomes more expensive to borrow as rates increase on services and items ranging from credit cards to home equity lines. That’s why the funds rate is the primary tool used by the Federal Reserve to try and put the brakes on inflation.  

When it costs more to borrow, businesses and consumers are less inclined to do it, and that means an overheated economy can cool and price increases may slow. 

When is the next Fed meeting 2023? 

The Fed’s policy arm meets next on Oct. 31-Nov. 1. It will announce its interest rate decision at 2 P.M. ET on Nov. 1.

The Fed’s final meeting of the year is Dec. 12-13.

U.S. inflation rate by month

The inflation rate has plunged, tumbling by more than half from its peak of 9.1% in June, 2022. But it’s still above the 2% target preferred by the Federal Reserve. Here's where the U.S. inflation rate has stood each month since May 2022:

• May 2022: 8.6%
• June 2022: 9.1%
• July 2022: 8.5%
• Aug 2022: 8.3%
• Sept 2022: 8.2%
• Oct 2022: 7.7%
• Nov 2022: 7.1%
• Dec 2022: 6.5%
• Jan 2023: 6.4%
• Feb 2023: 6.0%
• Mar 2023: 5.0&
• Apr 2023: 4.9%
• May 2023: 4.0%
• June 2023: 3.0%
• July 2023: 3.2%
• August 2023: 3.7%

Why is CPI important?

The Federal Reserve watches two key measures of the economy, price stability and maximum employment, which are its main considerations in interest-rate decisions.  The CPI gives the Fed guidance to assess whether prices are “stable.’’

CPI is also used to inflation-adjust things like Social Security payments and income tax brackets. It’s also the reference rate for some financial contracts, such as Treasury Inflation Protected Securities (TIPS). 

What is the difference between CPI and core CPI?

Core prices leave out volatile food and energy items and therefore are a more accurate reflection of longer-term trends.

Where should we expect tamer prices?

September used car prices likely fell at least 2% from the prior month, while energy prices recorded a modest increase of 0.4% after a 5.6% jump in August, said Stephen Juneau, U.S. economist at Bank of America. Retail gasoline prices, he said, were nearly flat last month.

Goldman Sachs economists forecast a 2.3% decline in used car prices and a 0.1% dip in new car prices last month.

What prices are still rising a lot?

Renters are still getting squeezed. Goldman Sachs economists see rents up 0.48% on the month, rising at about a steady pace. Shelter inflation, which includes home prices, rents and other lodging, comprises about a third of the consumer price index (CPI). However, Goldman says 

Airfares are also expected to post a gain, some economists noted. 

Will the Fed raise rates again this year?

It depends on the data.

The CME Fed watch tool that helps gauge the market’s expectation for a rate move puts the chances of a Fed rate hike at only 10%, but economists aren’t yet fully ruling one out, partly because the labor market remains strong. A strong job market puts money in people’s pockets, which can fuel spending and inflation.

“With the surprisingly-strong September job report intensifying the debate on the further hikes, the near-term policy trajectory will be highly sensitive to Thursday’s CPI,” Deutsche Bank economists said in a note.

The last time the Fed met in September, it held rates steady at a 22-year high of 5.25% to 5.5% but signaled another hike is likely this year amid still elevated inflation and a sturdy economy.

“Broadly, stronger economic activity means we have to do more with rates,” Fed Chairman Jerome Powell told reporters then. 

He also said, separately, “we will continue to make our decisions meeting by meeting, based on the totality of the incoming data and their implications for the outlook for economic activity and inflation, as well as the balance of risks.”

What's the difference between CPI and PPI?

CPI measures inflation as experienced by consumers going about their day-to-day lives, while the PPI, or producer price index, measures the average changes over time in the sale prices received by domestic producers for their output. PPI, often referred to as wholesale price inflation, is gleaned during an  earlier phase of the production and marketing cycle and typically impacts CPI. 

Core inflation, which assesses inflation but leaves out the more volatile prices of food and energy, is the other key price metric.  

10-year Treasury yield

In bonds, the 10-year Treasury yield, which tends to rise if inflation accelerates, was 4.64%, up a modest 0.046 points.

2024 COLA Watch

Social Security recipients found out Thursday how much of a raise they will get next year. That’s because the consumer price index report contains data the Social Security Administration (SSA) uses to determine the cost-of-living adjustment or COLA for 2024. 

Those payments will go up 3.2%. 

What is the current inflation rate?

The annual overall inflation rate is currently 3.7%, but is expected to have slid by a tenth of a point in September.  

Inflation definition

Inflation is a "generalized rise in prices," according to Josh Bivens, director of research at the Economic Policy Institute, a left-leaning think tank based in Washington D.C. The cost of items and services ranging from health care, to gas, to groceries can shift depending on inflation.  

Demand pull inflation

When there are too few goods to meet the demand, prices are likely to rise, according to Investopedia. That disparity is called demand pull inflation. 

Inflation calculator

The Department of Labor has a tool that enables consumers to find out shifts in their buying power.   

What is CPI?

The Consumer Price Index (CPI) looks at the average change in prices for particular products and services over a period of time, according to the Bureau of Labor Services.

It’s one inflation measure that the Fed and the economist use as a barometer to gauge price stability. The Fed’s preferred inflation gauge is the Personal Consumption Expenditures Price Index, or PCE, prepared by the Bureau of Economic Analysis (BEA). The next PCE report for September is due Oct. 27.

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