Despite the Federal Reserve’s attempts to combat inflation, the latest data from the U.S. Bureau of Labor Statistics (BLS) reveals that such progress may be minor, or nonexistent.
The September CPI report saw a 0.6% monthly increase, with annual inflation gaining traction once again at 3.7%. The latest data is up from August’s report, which saw a monthly increase of 0.4% and an inflation rate of 3.4%.
Core inflation—or the all items less food and energy index—remains unchanged at 0.3% on a monthly basis, but it did increase by 2.6% annually.
Overall, the data “came in slightly hotter than expected,” according to Realtor.com® Senior Economist Jake Krimmel.
“Today’s numbers all but guarantee a hike by December though, while further opening the door for one or more hikes in early 2027. We are in ‘when’ not ‘if’ territory when it comes to the next Fed rate increase,” he noted.
Mortgage rates are already up almost 80 basis points since August, according to Freddie Mac, as housing markets stare down the slower fall and winter seasons. The rapid run-up in rates has largely been blamed on the Iran war as well as a sharp increase in treasury yields driven by spiraling government debt.
Prior to the report’s release, Krimmel projected headline inflation to rise to 3.6%, and although the actual rate is fairly close, it may not bode well for the Fed.
“(The) report is also the last inflation read before the Fed announces its next move on Oct. 28,” Krimmel said in a statement prior to the September report’s release. “At a minimum, the Fed will want confirmation that inflation is not getting worse, but that alone won’t mean they see it as acceptable.”
The big picture
According to economists, housing is sure to take a hit. Lisa Sturtevant—chief economist at Bright MLS—said that persistently high inflation is “dealing another blow to an already cooling housing sector.”
Lately, mortgage rates have soared in the mid-7% range, with the latest Freddie Mac survey reporting an average 30-year fixed-rate mortgage of 7.4%.
“With average mortgage rates at a near three-year high, there has been a sharp pullback in home sales,” Sturtevant added. “Prospective homebuyers are dealing with both high home prices and high mortgage rates. They are also dealing with higher costs across everyday living expenses, which makes saving for a downpayment and qualifying for a mortgage even more difficult.”
She also broke down the monthly inflation increase by category, and stated that “rising energy prices were the key driver of the inflation uptick.”
The gasoline index shot up this month by 9.1%. Previously, gasoline increased by 3.9% in August, putting energy costs on the forefront of everyone’s minds.
Combining energy commodities and energy services, the energy index increased by 5.2% for September. The jump in the energy index—which clocked in at 2.1% the previous month—generally contained the highest contributions by category. Gasoline already spiked month-to-month, but fuel oil also joined the trend by increasing 15.3%.
In terms of outlook, economists acknowledge that the real estate market may continue to face severe headwinds, as uncontrolled inflation will squeeze buyers already facing affordability struggles.
“This is a tough print for housing, not because of what higher inflation means for right now but because of what it may mean moving forward,” Krimmel said. “On real wages, earnings growth of 3% now trails 3.7% inflation, so buyers’ paychecks are losing ground just as monthly payments climb.”
Sturtevant warned real estate professionals to “expect the housing market to slow down considerably this fall.”
“While year-to-date sales are currently tracking at about last year’s levels, the combined headwinds of higher mortgage rates, higher inflation, and weak consumer confidence will drag activity lower. We could potentially see existing home sales below 4 million for 2026 for the first time since the 1990s,” she concluded.
Although the latest data doesn’t signal good news, Krimmel remains optimistic and explains the steps needed to address elevated inflation and jumpstart the housing market.
“Getting inflation under control by early 2027 likely means lower mortgage rates while also bringing consumers closer to real wage gains, which would improve purchasing power, help ease the lock-in effect, and get both affordability and market activity moving back toward normal,” he said.
