Shutdown-delayed report showed inflation edged up in September The consumer price index showed that inflation rose at a 3 percent annual rate, a pace last hit in January.
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The Social Security Administration announced a 2.8% cost-of-living adjustment in 2026, upping the average payout for retirees by about $56 each month.
The benefits increase will take effect in January for approximately 71 million Social Security recipients, and on Dec. 31 for the nearly 7.5 million receiving Supplemental Security Income, according to the latest report.
“Social Security is a promise kept, and the annual cost-of-living adjustment is one way we are working to make sure benefits reflect today’s economic realities and continue to provide a foundation of security,” Social Security Commissioner Frank J. Bisignano said in a statement.
Over the last decade, the COLA increase has averaged about 3.1% — in 2025, it was 2.5%, and in 2024, 3.2%. The payments are financed by taxes collected by U.S. workers and employers up to a certain annual salary, the Associated Press reported.
Friday’s COLA announcement was timed to align with the release of the September consumer price index report, which was delayed by more than a week due to the ongoing government shutdown.
New data released Friday showed inflation heated up in September to a pace not seen since January, according to the first dataset to be released during the government shutdown.
The September consumer price index showed prices rising at a 3 percent annual rate — up slightly from 2.9 percent in August and above April’s post-pandemic low of 2.3 percent, according to the Bureau of Labor Statistics.
Gasoline prices jumped 4.1 percent and were the largest factor in a 0.3 percent monthly increase. Some categories with exposure to tariffs, such as apparel and furniture, notched gains.
Core inflation, which excludes food and energy and is seen as a steadier gauge of underlying pressures, eased slightly to a 3 percent annual rate.
The report offers the only official glimpse of the economy this month amid the government shutdown, highlighting the continuing impact of President Donald Trump’s tariffs on consumers, some of which began to take effect in August.
Friday’s inflation report was originally due Oct. 15, but was postponed after the shutdown furloughed most Bureau of Labor Statistics staff. The White House later recalled key employees to finish the report, which is needed to calculate the annual cost-of-living adjustment for Social Security recipients.
Despite sweeping tariffs, higher costs have filtered into consumer prices more slowly than expected. Many duties didn’t take effect until weeks or months after the announcement, and companies stockpiled goods before the levies hit — inventories that are now largely depleted. This summer, consumer prices began rising across a broader range of goods.
Blerina Uruci, chief U.S. economist at T. Rowe Price, said private data points to prices that are edging higher in categories such as apparel and new vehicles, where early signs of tariff pass-through are emerging. She estimates roughly a third of tariff effects have reached consumers, with companies still absorbing much of the rest.
The economic picture is complicated by signs of cooling elsewhere. Revisions to government labor data show U.S. employers added far fewer jobs over the summer than initially reported, underscoring a loss of momentum even before new tariffs and immigration policies began squeezing business costs.
Though the latest jobs data has also been delayed by the shutdown, perceived weakness in the labor market led the Federal Reserve to trim interest rates last month for the first time this year. Markets expect additional cuts at the two remaining policy meetings this year, including next week.
Nathan Sheets, chief economist at Citigroup, said the Fed is taking a cautious approach. Inflation is largely under control, but concerns are rising about a weakening labor market. The upshot is that cutting rates now is intended to make it easier for companies to hire, supporting a jobs market that is starting to soften without spurring excessive inflation.
“As they cut, they’re not putting their foot on the accelerator,” Sheets said. “What they’re doing is they’re just not pumping the brake as hard as they were before.”
Inside the Fed, some officials say tariffs will nudge up prices in the near term, but they aren’t expected to cause a long-term rise in the overall rate of inflation. Because of that, the Fed shouldn’t let temporary price jumps from tariffs change its broader policy decisions — it can afford to “look through” these short-term effects and focus on the bigger picture of inflation.
“My base case is that tariffs will increase the price level, but they won’t leave a lasting imprint on inflation,” said Philadelphia Fed president Anna Paulson, in a speech last week. “And, given this base case, monetary policy should look through tariff effects on prices.”
U.S. companies across industries are feeling the squeeze from the deepening split between lower-income and affluent consumers as tariffs pile on more uncertainty.
Executives at bellwethers such as Coca-Cola(KO.N), opens new tab, along with toymakers, hoteliers and financial-service providers, have noted how lower-income households are canceling or delaying purchases, exposing a hidden belt-tightening even as affluent consumers keep U.S. spending afloat.
"There is bifurcation in the consumer behavior," Andre Schulten, CFO at consumer goods giant Procter & Gamble(PG.N), opens new tab, said Friday, adding that while financially secure consumers are buying larger pack sizes, those living paycheck to paycheck are seeking out deals as inflation remains above the U.S. Federal Reserve's preferred 2% target.
While some estimates have shown steady headline spending, consumer sentiment surveys show pessimism over future conditions and inflation, which is currently rising at a 3% rate, according to federal data.
Nearly two-thirds of customers, up from 59% last year, plan to wait until Thanksgiving weekend for most of their holiday shopping to take advantage of discounts, according to a National Retail Federation survey.
Brad Beckham, CEO of O'Reilly Automotive(ORLY.O), opens new tab, said some customers were delaying major repairs even as the replacement auto-parts retailer raised its annual revenue target.
Some companies, like Procter & Gamble and Coca-Cola, are experimenting with smaller-sized products aimed at lower-income consumers. Coca-Cola introduced mini single-serve cans of some of its sodas in U.S. convenience stores earlier this month.
"Our system in the U.S. is adapting to both the higher and the lower end, and both offer opportunities and challenges. At the lower end, affordability and value are really important," Coca-Cola's CFO John Murphy told Reuters.
Meanwhile, Target (TGT.N), opens new tab, which predominantly stocks non-essential products that lower-income consumers have steered clear of, is cutting about 1,800 jobs as part of a turnaround. It will report results next month.
While the broad-market S&P 500 has gained nearly 15% this year, the SPDR Consumer Staples ETF, which tracks companies that sell basic consumer needs, is up less than 1% in that period.
CREDIT MARKET JITTERS RAISE WORRIES
The credit market has been rattled by several bankruptcy filings by lenders that predominantly serve lower-income groups.
PrimaLend Capital Partners, which finances car purchases for customers with poor or limited credit through the "buy-here-pay-here" auto market, filed for bankruptcy earlier this week.
Tricolor, which sold cars and offered auto loans primarily to low-income Hispanic communities in the U.S. Southwest, also went bankrupt in September.
Financial-tech firm PROG Holdings (PRG.N), opens new tab, which caters to customers who may not qualify for traditional credit, cut its revenue outlook on Wednesday. Its shares are down 26% so far this year.
"While the overall unemployment rate is still low, the heightened financial stress and greater caution among lower-income consumers across our leasable categories is a headwind to gross merchandise volume," CEO Steve Michaels said.
U.S. President Donald Trump's new 25% tariffs on all medium- and heavy-duty truck imports from November 1 add another challenge, said Telsey Advisory Group analyst Dana Telsey.
"For companies operating in highly competitive sectors where price elasticity is high, there may be limited room to raise prices, forcing some firms to absorb part of the cost increase," she said.
WIN SOME, LOSE SOME
The split is also reflected within individual companies.
"Our franchisees in the lower chain scales are beginning to discount... more so to try to capture demand right now," Wyndham Hotels' CEO Geoffrey Ballotti said. "We're helping franchisees where we can and urging franchisees to hold rates where it makes sense."
On the flip side, Hasbro's gaming business, which caters to wealthier consumers, helped it raise its annual targets.
"Businesses are increasingly feeling the fallout on their sales and profits from the mounting skew between the haves and the have-nots," said Mark Zandi, chief economist at Moody's Analytics.
"It is a tough business environment for those companies that don't cater to the well-to-do."
U.S. business activity picked up in October, but a deterioration in the economic outlook blamed on the Trump administration's protectionist trade policy limited job gains and companies were sitting on piles of unsold goods amid a slump in exports.
S&P Global's flash U.S. Composite PMI Output Index, which tracks the manufacturing and services sectors, increased to 54.8 this month from 53.9 in September. A reading above 50 indicates expansion in the private sector.
The services sector accounted for most of the improvement, with manufacturing maintaining a steady pace of expansion.
At face value, the PMI suggested the economy started the fourth quarter on a solid footing. But an official data blackout because of the U.S. government shutdown amid a standoff over funding between Republicans and Democrats in Congress has made it difficult to gauge the economy's health.
August's data showed a stalling labor market as businesses remained reluctant to boost hiring, but consumer spending was resilient, mostly driven by higher-income households.
"Business confidence in the outlook for the coming year has deteriorated further, and is at one of the lowest levels seen over the past three years as companies worry about the impact of policies, most notably tariffs," said Chris Williamson, chief business economist at S&P Global Market Intelligence.
"Companies are also concerned over disappointing export sales, especially in manufacturing, and factories are seeing an unprecedented rise in unsold stock."
EXPORT ORDERS SINK TO SIX-MONTH LOW
The survey's measure of new orders received by businesses increased to 54.2 from 53.1 in September. Its gauge of export orders dropped to a six-month low of 47.8 from 49.7 in September.
Rising inventory is tempering selling price increases even as businesses continue to face higher costs for inputs.
A measure of prices asked by businesses slipped to 55.2 from 56.5 in the prior month. A measure of prices paid for inputs edged up to 60.8 from 60.6 in September, attributed to tariffs.
It is unclear what the implications are for inflation. Though consumer prices have risen amid the pass-through from tariffs, they have not skyrocketed as economists had feared.
There are indications that businesses have absorbed most of the import duties and have also been selling merchandise accumulated before President Donald Trump's wide-ranging tariffs. Though the S&P Global survey reported businesses were carrying excess inventory, government data last month showed inventories were drawn down in the second quarter.
Economists say companies are absorbing import duties at the expense of hiring more workers. The Federal Reserve is expected to cut interest rates again next week to shore up the labor market. The survey's measure of private sector employment rose to 51.4 from 50.6 in September. All the gains came from the services sector, with factory employment growth slowing.
S&P Global said employment growth in both sectors "was curtailed by a lack of suitable candidates to replace leavers but also reflected concerns over staffing needs given current sales levels and uncertainty over the demand outlook."
