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Key Inflation Gauge Ticks Up, But Remains Near Target Level
October 30, 2024
Inflation climbed slightly in September, as the Federal Reserve’s preferred inflation metric comes within spitting distance of policymakers’ target rate.
The personal consumption expenditures (PCE) price index increased by a seasonally adjusted 0.2% last month from the month prior. On an annual basis, the index was up 2.1%. That is 0.2 percentage points lower than the month earlier and is just slightly above the Fed’s 2% target. Both figures were in line with expectations from economists polled by Dow Jones.
The Fed prefers the PCE index over the more commonly cited CPI as it accounts for changing consumer behavior such as substituting products or changing brands. The PCE has been above the Fed’s 2% target since February 2021.
While the topline number shows the Fed nearing its target, the so-called “core” PCE, which strips out volatile components like food and energy and is considered a better indicator of future inflation, held steady at an annual rate of 2.7% last month. Economists had been expecting a 0.1% decline.
The month’s inflation gains were driven by service prices, which increased 0.3% for the month. On the other hand, goods prices declined 0.1%. This marks the fourth time we have seen outright deflation in goods prices in the past five months. Housing inflation, a persistent thorn in the Fed’s side, eased somewhat, rising 0.3% for the month.
The report is the last major piece of economic data that Fed policymakers will receive before next week’s meeting of the Federal Open Markets Committee. The markets are betting heavily that we will see another interest rate cut, but it remains to be seen if it will match September’s half-percentage point cut, or be a more modest quarter-percentage point cut.
