Inflation is hitting fewer corners of the economy, but that doesn't mean life is getting cheaper. According to calculations by a prominent media outlet based on data from the U.S. Bureau of Labor Statistics, only about 38% of the approximately 175 categories in the CPI have seen an annualized increase of more than 3% over the past six months. This proportion is down from 56% in May and is the lowest since the spring of 2025. This count borrows from a test proposed by Federal Reserve Chairman Warsh in his August Jackson Hole speech—counting how many categories in the Fed's preferred PCE price index have increased by more than 3% to measure the breadth of inflation. The Fed's target remains 2%. Warsh stated after the Fed's September rate hike that too many categories are still increasing by more than 3% on both six-month and twelve-month basis. By this standard, the September data is more reassuring than the overall data suggests. The 12-month count fell to about 47% from 51% in August. At its peak in 2022, about four-fifths of the categories increased by more than 3%. In the two decades before the pandemic, it was typically about one-third.

Improvement in the breadth of inflation: the six-month count fell to 38%.

According to calculations by well-known media outlets, about 38% of the CPI categories saw annualized increases exceeding 3% over the past six months, down from 56% in May and the lowest level since the spring of 2025. The 12-month count fell to about 47% from 51% in August. At its peak in 2022, about four-fifths of the categories saw increases exceeding 3%. In the two decades before the pandemic, this was typically about one-third. This improvement implies that inflation is receding from fewer corners of the economy, and the breadth of price pressures is decreasing. This trend supports the Federal Reserve's stance of waiting before taking further action, and traders are also leaning towards this direction. According to data from well-known institutions, as of last Friday's close, the bond market priced in a probability of an interest rate hike at the October 27-28 meeting at about 17%, down from about 33% after last Wednesday's CPI report. Warsh declined to predict the next move in his speech ahead of Friday's IMF meeting.

Fed internal divisions: Goolsby leans towards waiting, Brussula expects a December rate hike.

Some Federal Reserve officials want more evidence before taking action. Chicago Fed President Goolsby called the September inflation report disappointing, but told the media he preferred to wait before acting again, saying, "We need more data." Not everyone sees progress. RSM chief economist Brussula wrote on Wednesday that there is little evidence of cooling or widespread deflationary momentum, citing trade, energy, and artificial intelligence as sources of persistent price pressures. He expects another 25 basis point rate hike in December. The bond market is leaning towards his long-term view—traders are still pricing in about one full 25 basis point rate hike before the December 9 meeting, and nearly three more by September 2027.

Stubborn categories: electricity, rent, hospital services, and car repair

The categories still above 3% are precisely those with the largest spending weights. Electricity, rent, hospital services, and auto repairs have all seen seasonally adjusted increases exceeding 3% over the past six months, while gasoline has risen by approximately 34% year-over-year. These categories, still above the 3% mark, collectively account for at least 60% of the CPI basket—calculated by the Bureau of Labor Statistics based on household spending weights. Groceries present another side of the story: while grocery prices rose by less than 2% over the past year, they have still increased by nearly a third since December 2019. Electricity has risen by 43% during the same period. This data suggests that while the breadth of inflation is decreasing, the decrease is primarily occurring in categories with smaller weights or smaller price increases. The categories still above the 3% mark—electricity, rent, hospital services, and auto repairs—are precisely the items with the largest weights in household spending and the most difficult to reduce. Therefore, an improvement in the breadth of inflation does not equate to an easing of consumer sentiment.

Market pricing: The probability of an October rate hike has dropped to 17%, while a December rate hike is still priced in.

The bond market has priced in an October rate hike at around 17%, down from about 33% after the CPI report. However, traders are still pricing in about one full 25-basis-point hike before the December 9 meeting, and nearly three more hikes by September 2027. This divergence means the market sees a lower probability of action in October, but a tightening path in December and beyond is still being priced in. Improved inflation breadth supports the wait, but stubborn categories and warnings from institutions like the RSM are sustaining longer-term tightening expectations.

The next test: September PCE and October CPI

The next test is the September PCE inflation data, released on October 29th, the day after the Fed's decision. Next month's CPI report follows closely. If the six-month count remains below 40%, the reasons to wait will be stronger. If it rises back to 50% or above—close to levels seen for most of the first half of the year—a rate hike will be back on the table. Watch rents and electricity. A shrinking count won't be reassuring until they cool down.

Editor's Summary

The breadth of US CPI inflation has improved significantly, with the percentage of categories showing an annualized increase of over 3% in the past six months falling to about 38%, the lowest since the spring of 2025, and the 12-month percentage also declining to about 47%. This trend supports the Federal Reserve's patience ahead of its October meeting. However, categories with significant weightings, such as electricity, rent, hospital services, and auto repairs, remain above the 3% threshold, accounting for more than 60% of the basket, and consumers' actual perception of inflation has not improved accordingly. There is disagreement among officials, with some preferring to wait for more data and others expecting a rate hike in December. The market has reduced the probability of an October rate hike to about 17%, but the tightening path in December and beyond is still priced in. The subsequent PCE and next month's CPI will be key tests, with rent and electricity trends being particularly noteworthy.

Frequently Asked Questions

Q: What is the inflation "breadth" indicator? Why is it important? A: The breadth indicator tracks the percentage of categories with price increases exceeding 3%, measuring whether inflation is widespread. A declining percentage indicates that pressure is receding from more areas, reflecting potential stickiness better than a single average inflation rate, and is a test that officials like Warsh pay attention to. Q: Why is the September data described as "more reassuring than the overall figure"? A: The overall CPI rose to 3.7% year-on-year, and core CPI rose to 2.6%, but the percentage of categories exceeding 3% over six months fell to 38%, and over 12 months to 47%, indicating that the spread is improving, supporting the policy stance of "waiting for more evidence." Q: Why doesn't improved breadth mean consumers feel more at ease? A: Categories still above 3% (electricity, rent, hospital services, auto repair) account for at least 60% of the CPI, representing the most rigid and difficult-to-compress portion of household spending. A cooling of smaller weighted categories has a limited impact on overall perception. Q: What are the differences between Fed officials and the market regarding subsequent rate hikes? A: Goolsby prefers to wait for more data; Brussula expects a 25 basis point rate hike in December. The market has lowered the probability of an October rate hike to about 17%, but is still pricing in a December rate hike and further tightening in 2027. Q: What data is most crucial going forward? A: The September PCE (Federal Reserve Preference Index) and next month's CPI, released on October 29th. If the six-month count remains below 40%, the reasons for waiting will strengthen; if it rises above 50%, a rate hike may be back on the agenda, with particular attention needed on rents and electricity.