Annual inflation rate drops to 2.4 percent, lowest since February 2021

Consumer prices rose slightly in September as the Federal Reserve prepared to cut interest rates and ease off the brakes of the U.S. economy.

The consumer price index, a closely watched gauge of inflation, rose 0.2 percent in September and 2.4 percent over the previous 12 months, the Bureau of Labor Statistics announced Thursday. The annual inflation rate was the lowest since February 2021.

Economists expected prices to rise 0.1 percent in September and 2.3 percent annually, according to consensus estimates, down from 2.5 percent in August.

The new inflation data comes less than a month before the election, in which Vice President Harris is attempting to overcome former President Trump’s edge on the economy with voters.

Harris is aiming to sell voters on the rapid economic recovery from the COVID-19 recession while also showing sensitivity to inflation, which hit four-decade highs in 2022 before dropping sharply over the past 18 months.

The vice president is faring much better in polling on the economy than President Biden had when he was the Democratic presidential nominee, but still struggling to close the gap with Trump as prices remain at inflated levels.

While inflation came in slightly above expectations, the decline should keep the Fed on track to cut rates despite an unexpectedly strong jobs report.

The Fed cut its baseline interest rate range by 0.5 percentage points last month, dropping borrowing costs from two–decade highs as inflation continued to fall. The Fed is expected to keep cutting interest rates, which could stimulate the economy and boost investor confidence.

“This is a critical inflation report as the Fed heads into next month’s meeting, trying to decide how much to cut interest rates. Given that the most recent jobs report was so strong, it was possible that a big upside surprise to inflation could have caused the Fed to pause at the next meeting and leave rates unchanged,” said Chris Zaccarelli, chief investment officer for the Independent Advisor Alliance.

“We think investors should be reassured that the economy is doing well, the labor market and consumer spending are both holding up well, and there doesn’t appear to be any signs of recession.”

Updated at 9:32 a.m. EDT