US inflation rises to 3%, less than expected
Newsflash: US inflation has risen, but not as much as expected, new delayed economic data shows.
The annual US consumer prices index rose to 3% in September, up from 2.9% in August, but lower than the 3.1% which economists had forecast.
That means the cost of living is continuing to rise faster than the Federal Reserve’s 2% target, as the US central bank comes under pressure from the White House to cut interest rates faster.
In September alone, prices rose by 0.3%, a slight slowdown after rising 0.4% in August.
The data, which had been delayed by the ongoing US government shutdown, also shows that gasoline prices rose by 4.1% in September, while food was up 0.2%.
Key events
Experts: US inflation paves way for Fed rate cut
Economists are welcoming the news that US inflation was lower than feared last month, and predicting it will pave the way for a cut in US interest rates next week.
James Knightley, chief international economist at ING, explains:
Tariff related inflation will remain a concern in the near term, but it is the jobs market that is becoming the more pressing issue for the Fed…
This jeopardises the “maximizing employment” goal of their dual mandate that could in turn prompt a weaker economy and risk them undershooting the 2% inflation target over the medium to longer term.
We continue to look for a 25bp rate cut next week with a further 25bp move in December and 50bp of cuts in early 2026.
Neil Birrell, chief investment officer at Premier Miton Investors, says today’s inflation report is ‘good news’:
It’s good to get some firm US economic data and the inflation number was a good one to get. It came in a little softer than expected for September, which is good news, particularly on the core rate. This probably seals a rate cut from the Fed next week and might even lead thoughts towards the view that tariffs are not going to have such a negative impact on inflation as feared, but it’s way too early to conclude that.
Nicholas Hyett, investment manager at Wealth Club, agrees that today’s slight inflationary undershoot probably makes more rate cuts just that little bit more likely:
“Though lower than analysts had feared, inflation remains above target.
We suspect a fair bit of the current inflationary surge is being driven by the effect of tariffs, which increases the cost of imported finished goods as well as raw materials for US manufacturers. This type of cost-push inflation is particularly hard to deal with because tweaking demand though changes to interest rates won’t affect prices, leaving the Federal Reserve trying to push water up hill in the short term.
An optimistic view would be that tariffs represent a one off step up in the price level, with inflation falling away after a year or so. That’s possible, but it relies on the economy avoiding an inflationary wage spiral – which, as the UK knows only too well, is easier said than done.”
The index for airline fares increased 2.7% in September, after rising 5.9% in August – a peak time for flights due to school summer holidays.
Digging into the US inflation report, we can see that housing pressures eased.
The shelter index (a measure of the cost of housing) rose by 0.2% in September, while the index for owners’ equivalent rent rose by just 0.1% in the month, the smallest 1-month increase in that index since January 2021.
Core inflation across the US has fallen, in a boost for households.
Today’s inflation report shows that the “all items less food and energy index” rose by 3% in the year to September, down from 3.1% in August.
That is an encouraging sign that inflationary pressures are not accelerating, as the US economy responds to the Trump trade war.
US inflation rises to 3%, less than expected
Newsflash: US inflation has risen, but not as much as expected, new delayed economic data shows.
The annual US consumer prices index rose to 3% in September, up from 2.9% in August, but lower than the 3.1% which economists had forecast.
That means the cost of living is continuing to rise faster than the Federal Reserve’s 2% target, as the US central bank comes under pressure from the White House to cut interest rates faster.
In September alone, prices rose by 0.3%, a slight slowdown after rising 0.4% in August.
The data, which had been delayed by the ongoing US government shutdown, also shows that gasoline prices rose by 4.1% in September, while food was up 0.2%.
Major illicit weight loss medicine production facility in Northampton raided
Officers from the Criminal Enforcement Unit (CEU) of the UK’s Medicines and Healthcare products Regulatory Agency (MHRA) have dismantled a major illicit manufacturing facility, making and distributing unlicensed weight-loss jabs.
The operation involved a warehouse in Northampton, where MHRA officers seized tens of thousands of empty weight loss pens ready to be filled, raw chemical ingredients, and more than 2,000 unlicensed retatrutide and tirzepatide pens awaiting dispatch to customers
The MHRS say this is the first illicit production facility for weight loss medicine discovered in the UK and is believed to be the largest single seizure of trafficked weight loss medicines ever recorded by a law enforcement agency worldwide.
Lisa O’Carroll
A forthcoming trip by German foreign minister, Johann Wadephul, to China has been cancelled amid growing fears that Beijing’s restriction on semi-conductor and rare earth exports could paralyse the country’s car industry.
“We are postponing the journey to a later time,” a foreign ministry spokesperson told a regular press briefing on Friday, adding:
“The Chinese side was ultimately able to confirm only the appointment with the Chinese foreign minister, and could not confirm any other additional appointments.”
It is not clear if the meeting was cancelled because senior officials from the European Commission have a meeting with counterparts from China next week. (See earlier post)
Yesterday the German car industry confirmed it had urgent talks with the economy ministry over the potential disruption to the car industry, the backbone of German manufacturing.
UK PMI report: What the experts say
The pick-up in UK business activity this month shows the economy is ‘muddling though’, economists say.
Thomas Pugh, economist at audit, tax and consulting firm RSM UK, explains:
“The rise in the Flash Composite PMI to 51.1 in October from 50.1 in September suggests that intensifying speculation around upcoming tax rises in the budget hasn’t fed through into business sentiment yet. What’s more, the rise in the GfK measure of consumer confidence from -20 in September to -17 in October suggests it hasn’t dampened household spirts either.
“Of course, the risk is that speculation will only intensify from here, so there is a chance of another downward revision to the final PMI. But for now, the PMI suggests the economy is continuing to muddle through.
Ashley Webb, UK economist at Capital Economics, says:
October’s flash PMIs suggest that the economy continued to muddle through at the start of Q4 and the upside risks to inflation continued to fade.
This probably won’t prompt Bank of England to cut interest rates from 4.00% in November, but it further increases the chances of the next rate cut happening in February, in line with our forecast, or perhaps a bit sooner in December.
EU officials to hold trade talks with China next week
Lisa O’Carroll
A team of senior EU officials will meet Chinese counterparts next week for urgent talks aimed at disentangling Europe from the ongoing trade war between Donald Trump and Xi Jinping.
They are battling to persuade Beijing to ease the restrictions they have imposed on both exports of rare earths and semi-conductors critical to car production.
The meetings will take place on line and in person, sources have said.
They follow a meeting of more than two hours this week between trade commission Maroš Šefčovič and commerce minister Wang Wentao earlier this week.
The car industry warned on Thursday that China’s ban on exports of semi-conductors made by Chinese owned Nexperia could halt production.
The ban, which was taken in the wake of the Dutch government’s decision to take over Nexperia in Nijmegan, comes on top of recent restrictions Beijing imposed on rare earth exports.
China has a stranglehold on global supplies of rare earths, and supplies could mean new cars cannot be finished if elements including magnets needed for window and boot openings and closings are choked off.
UK greenhouse gas emissions drop
Helena Horton
UK greenhouse gas emissions have fallen by 0.5%, mostly fuelled by a downturn in the manufacturing sector, according to the Office for National Statistics.
The sector saw the largest emissions decrease among industries, with emissions falling by 7.4%, from 70 million tonnes of carbon dioxide equivalent (Mt CO2e) in 2023 to 65 Mt CO2e in 2024.
Overall emissions were 476 Mt CO2e in 2024 (provisional), 43.3% below 1990 levels.
Some sectors saw an increase, including transport, which went up 4.5%, and household emissions which rose by 1.7% – the first time they have risen since the Covid pandemic.
The main driver of this was a 4.1% rise in residential natural gas combustion – heating using gas boilers.
Consumer expenditure remained the largest single contributor to UK emissions on a residence basis, at 26.0% of the 2024 UK total, followed by the transport sector at 16.1%.
November interest rate cut looking less likely after retail sales surge
The odds of a cut to UK interest rates next week have fallen, after retail sales across Great Britain rose to a three-year high last month.
The money markets now indicates there’s only a 35% chance of a rate cut at the Bank of England’s November meeting, down from 40% yesterday.
That follows this morning’s news that retail sales rose by 0.5% in September.
George Vessey, FX & Macro Strategist at Convera, explains:
This stronger print adds weight to the idea that UK consumption remains resilient despite fiscal uncertainty and sticky inflation. It could temper expectations for near-term Bank of England (BoE) easing too, especially if upcoming PMI data also shows improvement. Front-end gilts may fall (yields rise) in response, supporting the pound, particularly if traders reassess the dovish pricing that’s built up over the past month.
“The BoE needs clearer signs that price pressures are easing before loosening policy. Business surveys show firms still expect inflation to average 3.4% over the next year — well above the 2% target — and the IMF recently warned the UK will face the highest inflation among major economies through 2026.
Leonardo staff to strike in pay dispute
The Unite union has announced that more than 3,000 aerospace workers at defence and aerospace manufacturer Leonardo are to strike, in a row over pay.
Unite says strikes will take place next month, after Leonardo refused to improve its pay offer.
Workers have rejected a pay offer of just 3.2%, which Unite points out is a real terms pay cut (as CPI inflation is running at 3.8%), and want Leonardo to make an improved pay offer.
Strikes will take place at Leonardo factories on the following dates:
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Yeovil, Luton and Basildon – 5-6 and 12-13 November
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Edinburgh and Newcastle – 5-6, 10-18 November
Unite general secretary Sharon Graham says:
“Our members are highly skilled and work on critical defence and aerospace systems yet are being short-changed by a company making billions.
“Leonardo has had ample opportunity to do the right thing and make a decent offer that our members could have accepted. Instead they have refused and will now see the anger of our members on the picket line outside their factories. This is a dispute entirely of their own making and our members will have the full support of Unite in their fight for decent pay.”
UK cost inflation eases to 11-month low
The good news for businesses, consumers, the Bank of England and Rachel Reeves is that today’s UK PMI report shows cost inflation has eased to an 11-month low.
Costs have still increased “sharply” this month, S&P Global reports, but the overall rate of cost inflation eased to its slowest since November 2024.
They expain:
Service providers recorded a much faster increase in input prices than manufacturers. There were reports that softer raw material price inflation, alongside sterling exchange rate appreciation against the US dollar, had helped to moderate overall cost pressures.
Higher food prices, utility bills and salary payments were nonetheless widely reported in October.
Some UK auto parts manufacturers are still suffering from the JLR hack, today’s PMI report shows, even though the company restarted operations earlier this month.
S&P Global explains:
Survey respondents in the automotive supply chain again commented on challenging business conditions following the JLR cyberattack, despite a boost from the phased restart of manufacturing operations in October.
