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Key takeaways

  • The September 2024 Consumer Price Index (CPI) rose by 0.2% month-over-month (MoM) and 2.4% year-over-year (YoY), slightly higher than expected, but cooled from the 2.5% YoY rise in August. This marks continued progress toward the Federal Reserve’s (Fed) 2% target.
  • Broad declines in energy and gasoline prices contributed to a lower headline annualized inflation reading relative to August, while shelter and food prices drove over 75% of the monthly increase.
  • Core CPI (excluding food and energy) rose by 0.3% MoM and 3.3% YoY, up from 3.2% YoY the month prior, accelerating for the first time in one and a half years. Services prices remain a key driver of core price gains.
  • The uptick in core CPI reminds us that inflation pressure hasn’t fully dissipated, which should keep the Fed on a gradual pace of rate cuts going forward.

Contributors

Cristina Dwyer

Analyst, J.P. Morgan Wealth Management

 

The September 2024 Consumer Price Index (CPI) rose by 0.2% month-over-month (MoM) and 2.4% year-over-year (YoY), slightly higher than expected, but cooled from the 2.5% YoY rise in August.1This marks continued progress toward the Federal Reserve’s (Fed) 2% target.

Core CPI (excluding food and energy) rose by 0.3% MoM, unchanged from the prior month and higher than the 0.2% forecast. Core CPI rose by 3.3% YoY, an uptick from the 3.2% YoY rise in August, accelerating for the first time in one and a half years. This brings the three-month annualized rate up to 3.1%, the highest since May.2

The uptick in core inflation reminds us that the path to the Fed’s 2% target may be bumpier than expected, but doesn’t change our view that inflation is well on its way to 2%.

Breaking down the headline CPI

Broad declines in energy and gasoline prices contributed to a lower headline annualized inflation reading relative to August, while shelter and food prices drove over 75% of the monthly increase.3

The energy index fell by a steeper 1.9% MoM in September, following a 0.8% decline in August, and fell by 6.8% YoY. Gasoline prices declined by 4.1% MoM and 15.3% YoY, driving the decline in the energy component. Meanwhile, electricity prices rose 0.7% MoM and 3.7% YoY, and natural gas prices rose 0.7% MoM and 2% YoY.4

Overall, the deceleration in  parts of the energy basket in September is good news for the consumer. Slowing energy inflation should continue to bolster consumer purchasing power in the near-term, supporting economic growth.

The food index rose by 0.4% MoM, unchanged from the previous month, and 1.3% YoY in September. The food away from home index rose by 0.3% MoM and 3.9% YoY, while the food at home index rose 1.3% YoY.5

Chart showing contributions of various subcomponents of the CPI index to the overall CPI index from March 2020 to September 2024.

U.S. CPI by components

 

Year-over-year percentage change

 

This chart shows the contributions of various subcomponents of the CPI index to the overall CPI index from March 2020 to September 2024. The chart has two lines representing the Headline CPI percentage change and the Core CPI (excludes food and energy prices from the CPI) percentage change.

The Core CPI began at 2.1%, rose to 6.5% by March 2022, then fell to 5.9% by July 2022. It then increased to 6.6% by September 2022, the highest level since the pandemic. It fell to 3.2% by August 2024. The Headline CPI began at 1.5% in February 2020, fell to 0.1% in May 2020 and rose to 9.1% by June 2022, its highest level since the pandemic. It then fell to 3% by June 2023 due to the Energy sector’s 1.6% MoM decline. The Headline CPI fell to 2.4% by September 2024. In August 2024, Core CPI rose 3.3% YoY and headline CPI rose 2.4% YoY. Core services rose 2.8%, Core goods fell 0.2%, food rose 0.3% and energy fell 0.5%.

 

Source: Bloomberg Financial L.P. Data as of October 10, 2024.

Chart showing contributions of various subcomponents of the CPI index to the overall CPI index from March 2020 to September 2024.

 

Core CPI findings

Core CPI rose by 0.3% MoM and 3.3% YoY, up from 3.2% YoY the month prior, accelerating for the first time in one and a half years. Core services prices remain a key driver of core price gains and were up 0.4% in August, while core goods prices were up 0.2% MoM.6

Overall, core CPI was driven higher by notable price increases in shelter, motor vehicle insurance, medical care, airfares and apparel. These offset other areas where prices declined, like  the recreation and communication indexes.7

Shelter inflation, which accounts for a third of the total inflation basket, remained on the sticky side of the inflation equation. The shelter component increased by 0.2% MoM, a deceleration from the 0.5% rise the previous month, and 4.9% YoY. This increase drove over 65% of the total annualized increase in core inflation. Within the shelter component, the owners’ equivalent rent (OER) and rent index both increased by 0.3% MoM.8

Going forward, our strategists expect core inflation to gradually moderate as economic growth slows and the labor market becomes more balanced. Moderation of shelter prices, in particular, will help markedly reduce inflationary pressures.

Possible implications for the Fed

Despite the slight decline in August’s headline inflation, the reacceleration in core inflation once again reminds us that inflation pressure hasn’t fully dissipated. This should keep the Fed on a gradual pace of rate cuts going forward.

In our strategists’ view, the market focus has largely shifted to the labor market in recent months. Going forward, we expect the pace of cuts to be determined by developments in the jobs market, and last week’s hot employment report keeps us confident in its strength.9 We expect to see a 25 basis point cut in November and another in December.

Notably, Hurricanes Helene and Milton have caused much heartache and destruction across Florida and other parts of the U.S., and we want to express our deep sympathies to anyone affected. Our investment strategists’ job is to assess what impact events like this might have on economic markets – they expect that upcoming labor market data could reflect some weakening from the hurricanes’ impacts, accompanied by rises in jobless claims.

For more information on how this economic data may impact your investment strategy, consult a J.P. Morgan advisor.

References

1.

U.S. Bureau of Labor Statistics (BLS), “Consumer Price Index Summary.” (October 10, 2024)

2.

Ibid.

3.

Ibid.

4.

Ibid.

5.

Ibid.

6.

Ibid.

7.

Ibid.

8.

Ibid.

9.

Bureau of Labor Statistics (BLS), “The Employment Situation – August 2024.”


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