Underlying U.S. inflation rose more than forecast in September, representing a pause in the recent progress toward moderating price pressures.

The so-called core consumer price index — which excludes food and energy costs — increased 0.3% for a second month, disrupting a string of lower readings, Bureau of Labor Statistics figures showed Thursday. The three-month annualized rate advanced 3.1%, the most since May, according to Bloomberg calculations.

Economists see the core gauge as a better indicator of underlying inflation than the overall CPI. That measure rose 0.2% from the prior month, boosted by housing and food, which accounted for over 75% of the advance. Goods prices rose as well after reliably falling over the past year.

The higher-than-expected inflation figures will likely amplify the debate whether the Federal Reserve will opt for a small interest-rate cut next month or pause after a large September reduction. Officials penciled in another half-point of cuts by year-end, and many have said they’re watching developments in the labor market.

“Inflation is dying, but not dead,” said Olu Sonola, head of U.S. economic research at Fitch Ratings. “Coming on the heels of the surprisingly strong September employment data, this report encourages the Fed to maintain a cautious stance with the pace of the easing cycle. The likely path is still a quarter point rate cut in November, but a December cut should not be taken for granted.”

The S&P 500 opened lower, two-year Treasury yields declined and the dollar weakened. Traders saw higher odds of a 25-basis-point Fed rate cut next month after the release of the inflation data as well as another report that showed applications for unemployment benefits rose last week to the highest in over a year.

The Fed started lowering borrowing costs in September with an outsize 50-basis-point reduction given what had been continued inflation progress as well as a string of weak labor-market data. Minutes of the meeting released Wednesday indicate there was a robust debate over the size of the cut, and officials who have spoken since then say they favor a gradual approach.

New and used car prices were up as well as apparel and furniture, contributing to only the second increase in so-called core goods prices since June 2023. Grocery prices advanced by the most since the start of the year, particularly for eggs and fresh fruit.

Within services, car insurance, medical care and airfares rose notably. Admission to sporting events climbed a record 10.9%, in part reflecting the start of football season.

Shelter prices, the largest category within services, increased 0.2%, a big step down from August’s 0.5% advance. Owners’ equivalent rent — a subset of shelter and the biggest individual component of the CPI — rose 0.3%, also a deceleration from the prior month. Hotel prices declined, widely defying expectations for a hefty increase.

Excluding housing and energy, service prices rose 0.4%, the most since April, according to Bloomberg calculations. It also represented the third straight acceleration, the longest streak since early 2023. While central bankers have stressed the importance of looking at such a metric when assessing the nation’s inflation trajectory, they compute it based on a separate index.

That measure — known as the personal consumption expenditures price index — doesn’t put as much weight on shelter as the CPI does, partly why it’s trending closer to the Fed’s 2% target.

The PCE measure draws from the CPI as well as certain categories within the producer price index, which is due Friday. Several of the CPI items that registered robust gains, like car insurance and airfares, won’t feed through to the PCE, which should support another tame advance when the data are released later this month.

Policymakers also pay close attention to wage growth, as it can help inform expectations for consumer spending — the main engine of the economy. A separate report Thursday that combines the inflation figures with recent wage data showed that real earnings grew 1.5% from a year ago, the most since June 2023.

Other government data showed Social Security benefits will increase 2.5% in 2025 — the smallest boost since 2021 — per an annual cost-of-living-adjustment that’s calculated based on CPI data.

(With assistance from Chris Middleton and Ye Xie.)

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