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Prices for consumer goods and services increased faster than expected in September, dealing a blow to household budgets and the Federal Reserve's fight against inflation.

The cost of living as measured by the Consumer Price Index rose 0.2% in September from August, making for a 2.4% increase over the last 12 months, the Bureau of Labor Statistics said Thursday. The annual rate was down from a 2.5% annual increase in August, and a fresh low since February 2021.

While price increases slowed, economists and market watchers had expected it to cool more. According to a survey of economists by Dow Jones Newswires and The Wall Street Journal, both the monthly and yearly increases were higher than the median forecast. Economists expected an annual inflation rate of 2.3% and a monthly rate of 0.1%.

What Cause Inflation to Be Higher Than Expected?

Much of the increase came from food prices, which rose 0.4% over the month, the biggest jump since January.

"Core" inflation, which excludes the volatile prices for food and energy, rose 0.3% over the month, more than the 0.2% median forecast. For the year, the core measure grew 3.3%, higher than the expected 3.2% increase, driven up by increases in prices for shelter, car insurance, medical care, clothes, and plane tickets.

Economists look at core inflation as a more reliable indicator of the direction of inflation since food and energy prices can swing up and down for reasons that have nothing to do with broader inflation trends.

What Does The Inflation Report Mean For the Federal Reserve?

While inflation has trended downward in recent months, the September reading showed signs that prices could be stickier than previously thought. However, the hotter-than-expected report might not deter the Federal Reserve from lowering interest rates when its policy committee next meets in November.

The Fed had held its benchmark interest rate at a two-decade high for more than a year to raise borrowing costs on all kinds of loans and push down inflation. With inflation now falling closer to its goal of a 2% annual rate, Fed officials are paying more attention to the job market, lowering rates in order to boost the economy and prevent a spike in unemployment.