The Federal Reserve’s preferred readings on consumer price inflation were included in the Commerce Department’s September personal income and spending report, which was released on Thursday.
According to the study, after barely increasing by 0.1% in August, the personal consumption expenditures (PCE) price index increased by 0.2% in September. The slight rise was in line with economists’ projections.
A 0.1% decline in goods prices was more than offset by a 0.3% gain in services prices, which led to the PCE price index’s monthly increase.
Per the Commerce Department, food costs increased by 0.4% during the month, while energy prices fell by 2.0%.
In keeping with forecasts, the PCE price index’s annual growth rate decreased from 2.3% in August to 2.1 percent in September.
While prices for services increased by 3.7%, prices for goods fell by 1.2% from the same month last year.
The core PCE price index, which does not include food and energy costs, increased by 0.3% in September after increasing by 0.2% in August, according to the study. The rise was consistent with projections.
Economists had predicted that the pace of growth would fall to 2.6%, but in September, the core PCE price index’s annual rate of growth remained constant at 2.7%.
Quincy Krosby, Chief Global Strategist at LPL Financial, stated, “The year-over-year core PCE print indicated a 2.7% increase suggesting that the Fed is still on a bumpy course in this last mile to quell inflation and declare victory.”
“Although a 25-basis point move lower at the next Fed meeting is expected the Fed will need to acknowledge that with still resilient consumer spending, higher wages from a series of successful strikes, and a solid labor market, they will need to adopt the “gradual” approach towards lowering rates until there’s a comfort level within the FOMC that inflation isn’t poised to continue edging higher,” she added.
Additionally, personal income rose by 0.3% in September following a 0.2% increase in August, according to the Commerce Department. The growth was in line with what economists predicted.
After rising by 0.2% in August, disposable personal income—that is, personal income less personal current taxes—also increased by 0.3% in September.
After increasing by 0.3% in August, personal spending increased by 0.5% in September. A 0.4 percent increase in spending was anticipated.
Personal spending, excluding price adjustments, increased by 0.4% in September after increasing by 0.2% in August.
Personal savings as a percentage of disposable personal income fell from 4.8% in August to 4.6% in September as spending increased faster than income.
Conclusion
The Commerce Department’s September report reveals modest yet steady increases in both the PCE price index and the core PCE price index, signaling continued inflationary pressure, particularly in services. While goods prices dipped, service costs and food prices rose, indicating that the inflation challenge remains complex.
The report underscores resilient consumer spending, rising wages, and stable income growth, factors likely influencing the Fed’s cautious approach to rate adjustments. Despite the expectation of a rate pause, inflation levels close to 2.7% may lead the Fed to maintain a gradual pace in managing inflation risks, aiming to balance cooling the economy without stifling growth.