Annual Inflation Hits 3% in September
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By Ben Dolan, CFP®
Changes in consumer prices are being watched very closely, and with good reason. The Trump administration has enacted trade policies not seen since the 1930s. According to The Budget Lab at Yale, “consumers face an overall average effective tariff rate of 18.0%, the highest since 1934.” Given the shift in tariff rates, you might expect, as many economists did, that inflation will spike in 2025. While inflation has increased, it has not spiked (at least not yet).
In September, US Inflation hit 3%, according to the US Bureau of Labor Statistics. This is below expectations, yet it is an increase from the previous month. The 3% number matches the highest year-over-year inflation since January. See the full year-over-year numbers below:
While 3% inflation might seem manageable, there are two significant problems with this number. The first problem is previous spikes in inflation. Let’s not forget what happened from mid-2020 to mid-2022:
In a relatively short amount of time, from May of 2020 to June of 2022, inflation went from 0.10% to 9.1%. In other words, the price increase of 3% is on top of huge increases in prices not so long ago.
The second problem is wages. According to a 10/27/25 article in the Wall Street Journal by Konrad Putzier and Justin Lahart, lower income Americans are hurting: “this September, their wage growth was down to just 1.4%, well behind the inflation rate of 3%.” When incomes don’t keep up with inflation pocketbooks get squeezed.
Keeping an eye on inflation is only part of the story. According to usafacts.org, tariff revenue hit $165 billion through August, compared to $77 billion in fiscal year 2024. In short, the Trump administration is betting they can keep inflation tame enough to allow for new trade negotiations while collecting on current (and new) trade policy.
This story is still evolving. Over the weekend, the Trump administration cancelled trade negotiations with Canada, our second largest trading partner, and announced a new 10% tariff on imported goods after a video of Ronald Reagan deriding tariffs was published by the Province of Ontario. On the heels of this announcement, the administration publicized new trade deals with Malaysia, Cambodia, Thailand and Vietnam, while promoting improved talks with China. As of this writing, markets are cheering the news, with the S&P up 1%+.
All of this will have a meaningful impact on inflation. How much? Only time will tell.
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