Inflation rose slightly in October as the Federal Reserve looks for guidance on how much it should cut interest rates, the Commerce Department reported Wednesday.
The personal consumption expenditure price index, a broad measure that the Fed prefers as a measure of inflation, rose 0.2% month-on-month and showed a 12-month inflation rate of 2.3%. Both were in line with the Dow Jones consensus forecast, although the annual rate was above the 2.1% level in September.
Excluding food and energy, core inflation showed even higher readings, rising 0.3% on a monthly basis and rising 2.8% on an annual basis. Both also met expectations. The annual rate was 0.1 percentage points higher than the previous month.
Services prices drove most of the inflation this month, rising 0.4%, while goods prices fell 0.1%. Food prices were little changed, while energy prices fell 0.1%.
Fed policymakers target inflation at 2% per year. PCE inflation has been above this level since March 2021 and peaked at around 7.2% in June 2022, prompting the Fed to launch an aggressive rate hike campaign.
Following the release, stock markets were mixed: The Dow Jones Industrial Average rose about 100 points, while the S&P 500 and Nasdaq Composite were both negative. Treasury yields fell.
Despite the rise in headline inflation, traders increased their bets that the Fed would agree to another rate cut in December. The probability of a quarter-percentage point cut in the central bank's benchmark interest rate was 66% as of Wednesday morning, according to CME Group's FedWatch measure.
Although inflation has fallen significantly since the Fed began tightening, it remains a thorny issue for households and played a major role in the presidential race. Despite the slowdown in inflation over the past two years, the cumulative impact of inflation has hit consumers hard, particularly at the lower end of the wage scale.
Consumer spending was still solid in October, although it slowed slightly compared to September. Spending in current dollars rose 0.4% for the month, as forecast, while personal income rose 0.6%, well above the 0.3% estimate, the report showed.
The personal savings rate fell to 4.4%, marking the lowest level since January 2023.
On the inflation side, housing-related costs have continued to push the numbers higher, although the pace was expected to moderate as rents fall. Property prices rose 0.4% in October.
The Fed tracks a broad dashboard of indicators to measure inflation, but uses the PCE number specifically for its forecasts and as a key policy tool. The data is considered more comprehensive than the Labor Department's Consumer Price Index and takes into account consumer behavior, such as substituting more expensive items for less expensive ones.
Officials tend to view core inflation as a better long-term indicator, but use both numbers when considering policy actions.
The release followed back-to-back interest rate cuts by the Fed in September and November by a total of three-quarters of a percentage point. Although the reduction occurred in November, after the month covered by the report, markets had largely expected the move.
Fed officials expressed confidence at their November meeting that inflation is moving toward the 2 percent target, although members favored a gradual cut in interest rates, acknowledging uncertainty over how deep the cuts will be.
Comments are closed.