Inflation leveled off at 3.7% in September, continuing a gradual consumer price slowdown

Inflation leveled off to 3.7% in September compared to a year ago, extending a gradual slowdown in consumer prices, even as it slowed to 0.4% from 0.6% in August.

The Bureau of Labor Statistics released its latest round of price data Thursday morning. Experts had expected it to show that overall prices for consumers rose 3.6% from a year ago, and by 0.2% compared to August.

Meanwhile, core inflation — a measurement of cost increases that excludes energy and food prices because of their volatility — is up 4.1% from September last year, in line with expectations.

That means prices rose less in September than they did in August, when the cost of gasoline had spiked 10% from July.

The government said the cost of shelter rose 7.2% from a year ago. That was the largest reason for the increase, and it reflects continued growth in home prices, which by some measurements are at all-time highs.

Used car and truck prices continued to decline from a year ago.

Food prices grew 3.7%, matching the overall inflation reading, with food from restaurants and ‘away from home’ up 6%. Energy prices slipped 0.5% and natural gas and oil prices also fell.

The report might be especially significant for the trajectory of the economy.

The Federal Reserve raised interest rates sharply from March 2022 through this summer as it tried to get inflation under control. Inflation had hit 40-year highs in mid-2022, peaking at 9.1% annually, and it has generally slowed since then.

That doesn’t mean prices are lower than they were. Instead, they’re rising at a slower rate. Still, those slower increases have been a relief to some consumers, and wages have been rising faster than inflation recently, which makes it easier for people to afford goods and services.

What about interest rates going forward?

The Fed left rates unchanged in September, saying there had been progress in its fight against inflation. It’s in wait-and-see mode now.

But after 12 consecutive monthly declines, inflation sped up again in July and August. The increases were small, and there were reasons experts weren’t especially concerned about them — for example, gas prices spiked 10% in August and that hasn’t happened again.

Still, Raul Diaz, a regional senior investment officer at Northern Trust, said there’s no guarantee that inflation will continue to trend down.

‘Inflation could reignite given that the labor market has been very resilient and the U.S. is a very consumer-based economy,’ he said.

If the data shows inflation stayed higher than expected in September, especially in core areas, it might push the Fed to start raising interest rates again.

That would slow the economy further by making it more expensive for people and businesses to borrow money, and it would push mortgage rates even higher.

The Fed will announce its next decision on rates Nov. 1. Its main rate is now in the range of 5.25% to 5.5%, the highest since 2000.

While inflation remains higher than the Fed’s goal of 2% a year, experts say there are signs things are going in the right direction even as the economy holds up fairly well.

That’s one reason the Fed left interest rates alone in September. But another higher-than-expected inflation report would challenge that viewpoint.

Like interest rates, mortgage rates are at 23-year highs, which has made it much harder for people to afford homes.

Diaz told NBC News that’s just one challenge facing consumers and the economy in general. He said higher interest rates, the end of the pause on federal student loan payments, the recent increase in gas prices and dwindling personal savings are all likely to affect spending by consumers in the months ahead. It’s why he and Northern Trust think economic growth might be pretty weak over the next year.

‘We’re not predicting a recession over the next 12 months. We just think that growth is going to be positive but pretty low,’ he said.