Kiplinger Economic Outlooks are written by the staff of our weekly Kiplinger Letter and are unavailable elsewhere. Click here for a free issue of The Kiplinger Letter or to subscribe for the latest trends and forecasts from our highly experienced Kiplinger Letter team.
Inflation came in slightly softer than expected, ticking up to 3.0% in September, from 2.9% in August, a smaller increase than economists were looking for. A temporary sharp slowing of shelter costs helped to offset a jump in gasoline prices. Gas prices have dropped in October, however, and will subtract from October inflation, if the government shutdown ends soon enough for it to be reported. Price increases for groceries and at restaurants eased in September. Excluding food and energy, the inflation rate edged down to 3.0%, from 3.1% in August. Excluding housing, services prices continued rising at a moderate rate. Price pressures continued for child care and haircuts. Recent jumps in airfares have been tied to pickups in jet fuel costs, but this should reverse in October.
The impact of tariffs on prices is becoming more apparent, despite having so far only a modest effect on overall inflation. Three-quarters of all goods categories saw price gains in September, up from two-thirds in August. Historically, this level has been less than half, with declines in most goods prices offsetting services inflation to a degree. Now, however, goods are adding to inflation. Quality-adjusted prices for new motor vehicles are rising at their fastest rate since 2023. It seems likely that tariff costs will become more noticeable in prices as pretariff inventories of imported goods are drawn down throughout the summer.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Expect inflation to end the year a bit higher, at 3.3%. Core inflation (excluding food and energy) should also come in at 3.3%. The government shutdown means that price data for October are not being collected, and if the shutdown continues much longer, could be skipped entirely. But the September data show that the inflation picture is changing only slowly, so the Federal Reserve and analysts will assume a continuing trend of about 3%.
Inflation is still high in the eyes of the Federal Reserve, but suspected weakness in the labor market should lead the Fed to cut interest rates at its next policy meeting on October 29, and again on December 10. The Fed will be closely following the effects of tariffs on inflation over the next several months, but it should regard this as temporary. Unless a sustained pickup in inflation momentum occurs, the Fed will continue to prioritize boosting the economy.
While the headlines focus on the Consumer Price Index, note that the Fed’s goal of 2% inflation is based on a different measure, called the personal consumption expenditures deflator, not the CPI. The PCE deflator excluding food and energy is forecast to have risen at a 2.9% rate for the 12 months ending in August, the latest data available, compared with the core CPI’s 3.1% number. That’s still well above the Fed’s target for 2% inflation over the long term.
Related content
-
3 Ways to Stretch the 2026 Social Security COLA For Your BudgetThree steps retirees can take to stretch the Social Security COLA to fit their budgets.
-
How to Keep Your Charitable Giving Momentum Going All YearInstead of treating charity like a year-end rush for tax breaks, consider using smart tools like DAFs and recurring grants for maximum impact all the year.
-
Uber Takes Aim at the Bottom Lines of Billboard LawyersUber has filed lawsuits and proposed a ballot initiative, in California, to curb settlements it claims are falsely inflated by some personal injury lawyers.
-
The AI Boom Will Lift IT Spending Next YearThe Kiplinger Letter 2026 will be one of strongest years for the IT industry since the PC boom and early days of the Web in the mid-1990s.
-
The Delayed September Jobs Report Is Out. Here's What It Means for the FedThe September jobs report came in much higher than expected, lowering expectations for a December rate cut.
-
Shoppers Hit the Brakes on EV Purchases After Tax Credits ExpireThe Letter Electric cars are here to stay, but they'll have to compete harder to get shoppers interested without the federal tax credit.
-
Amid Mounting Uncertainty: Five Forecasts About AIThe Kiplinger Letter With the risk of overspending on AI data centers hotly debated, here are some forecasts about AI that we can make with some confidence.
-
Worried About an AI Bubble? Here’s What You Need to KnowThe Kiplinger Letter Though AI is a transformative technology, it’s worth paying attention to the rising economic and financial risks. Here’s some guidance to navigate AI’s future.
-
October Fed Meeting: Updates and CommentaryThe October Fed meeting is a key economic event, with Wall Street turned into what Fed Chair Powell & Co. did about interest rates.
-
Will AI Videos Disrupt Social Media?The Kiplinger Letter With the introduction of OpenAI’s new AI social media app, Sora, the internet is about to be flooded with startling AI-generated videos.
-
The Delayed September CPI Report is Out. Here's What it Signals for the Fed.The September CPI report showed that inflation remains tame – and all but confirms another rate cut from the Fed.
