What to know about the report.

Consumer Price Index inflation data released on Thursday showed that price increases did not moderate as much as expected in September, although they have still cooled significantly over the past two years.

The report showed that overall inflation was 2.4 percent on an annual basis, down slightly from 2.5 percent previously. That was somewhat higher than economists had forecast, as monthly inflation came in warmer than expected.

After stripping out food and fuel costs, which can be volatile from month to month, a “core” inflation measure picked up slightly to 3.3 percent, up from 3.2 percent previously.

While the report did not show as much of a cooling in inflation as economists had anticipated, the underlying details offered some good news. Shelter price increases showed signs of moderating in earnest in September, which is something that policymakers have been waiting for. With rent measures cooling, it will be easier to achieve a sustainable slowdown in inflation.

“Inflation doesn’t slow in a straight line, but the overall trend in inflation is one of slowing,” said Gennadiy Goldberg, head of U.S. rates strategy at T.D. Securities. “There is some good news and some bad news: The good news is that shelter inflation slowed notably.”

Here’s what else to know about the report:

• The big picture: The overall C.P.I. index has been cooling substantially from a peak of 9.1 percent in the summer of 2022. And both this index and a related measure — the Federal Reserve’s preferred Personal Consumption Expenditures index — have been creeping closer to the 2 percent annual rate that the central bank aims for over time.
• What it means for the Fed and interest rates: Recent progress on inflation has been welcome news for the central bank. Policymakers cut interest rates in September for the first time in more than four years, lowering them by an unusually large half percentage point. Fed policymakers have signaled that they expect to lower interest rates further as inflation cools. They projected in September that they would make two more quarter-point rate cuts this year.
• Will this report change the Fed’s thinking? While September’s inflation report was bumpier than expected, it was probably not enough of a stalling in progress to upend the outlook for the Fed: Investors still widely expect a cut in November. But the inflation data probably dispels any lingering suspicion that the central bank might opt for a larger rate reduction at its upcoming meeting — already a very slim prospect. “The Fed doesn’t need to do half-point rate cuts, because inflation is still somewhat of a risk,” Mr. Goldberg said.
• How the economy is doing: Recent data have suggested that both economic growth and the job market are holding up. The Fed is recalibrating policy in a bid to keep that going, and the fact that the labor market appears to be more solid than it had previously thought doesn’t seem to be shaking the central bank from its plan to gradually lower rates. “I want to maintain the strength that we see in the economy and in the labor market,” John C. Williams, the president of the Federal Reserve Bank of New York, said in an interview this week with The Financial Times.
• The political effect: That inflation is falling and interest rates are coming down could be good news for Democrats ahead of the election, bringing relief to consumers who have smarted from years of rising prices. But inflation could still be in for further bumps in coming months. Thursday’s report showed that used car prices and airfares picked up in price, and medical care services also ticked up notably. “The bad news is that services inflation is still a problem,” Olu Sonola, head of U.S. economic research at Fitch Ratings, wrote in reaction to the report.
• A note of caution: Given the continued price increases in some categories, and the fact that core inflation remains above the Fed’s target, some officials at the central bank have taken a warier stance toward rate cuts. They don’t want to lower borrowing costs too much too quickly, making it harder to fully snuff out price increases in the longer run. “We have not yet achieved our inflation goal,” Michelle Bowman, a Fed governor, wrote explaining why she had voted against September’s big rate cut in favor of a smaller move.