The Fed’s preferred inflation gauge shows price growth slowed in September
The pace of inflation came in at 3.7% in September, cooling from a year ago, according to the Federal Reserve’s preferred price measure, which excludes food and energy expenses.
The gain in the core personal consumption expenditures price index, released Friday, matched expectations among economists surveyed by FactSet. But it was down from the revised 3.8% rate recorded for August.
But from August to September, core PCE climbed to 0.3%, up from the 0.1% rate recorded in August, according to the latest Bureau of Economic Analysis data. Economists surveyed by FactSet expected core PCE to increase 0.3% month over month.
Today’s PCE inflation report provided confirmation that the Fed’s monetary policy is continuing to reduce inflation over time, albeit slowly, wrote Brian Pietrangelo, managing director of investment strategy at Key Private Bank. “Investors should view this pace of declines in inflation as generally positive and remain cautiously optimistic that inflation will abate going forward,” he said.
The overall PCE inflation rate, which includes the volatile food and energy prices that the core measure excludes, was 3.4% year over year, matching the revised rate for August. Economists had expected that the pace of price growth slowed last month.
Month over month, headline inflation held steady at 0.4% in September, compared with August.
The Bureau of Economic Analysis noted in its release that it had updated previously reported estimates for July and August. The bureau revised down the annual pace of core PCE growth from 3.9% in August to 3.8%. Headline PCE shifted down as well, from a 3.5% year-over-year rate to 3.4%. The monthly pace remained unchanged.
The steady pace of overall inflation in September was driven by an uptick in energy prices, which climbed 1.7% over the last month, but declined 0.1% from the level recorded a year ago. Food prices ticked up by 0.3% from August to September, rising 2.7% last month from a year prior.
Compared with a year ago, prices for services increased by 4.7% compared with goods expenses rising 0.9%, according to the Bureau of Economic Analysis data.
Consumer spending remained fairly resilient last month, rising $138.7 billion, or 0.7%. Services accounted for much of the gain. International travel and flights, as well as housing and spending on hospitals and nursing homes were some of the biggest contributors.
Within goods, nondurable items continued to show strength, led by prescription drug purchases and vehicle parts.
“Consumer spending remains sturdy but cannot continue at this pace,” wrote Gus Faucher, PNC’s chief economist. He noted that when adjusted for inflation, spending was up 4% at an annualized pace in the third quarter, rising much faster than income. Personal income increased by $77.8 billion, or about 0.3% in September, not quite hitting the 0.4% pace seen in August.
And savings rates continue to fall. Personal saving as a percentage of disposable personal income was down to 3.4% last month from 3.9% in August. “At some point consumers will need to slow their spending growth, but for now the strong labor market is supporting gains despite the drag from higher interest rates,” Faucher said.
Friday’s report had signs that the U.S. economy is continuing to head in the right direction for further disinflation, wrote Andrew Patterson, Vanguard’s senior economist. But Thursday’s gross domestic product estimate that revealed economic growth hit 4.9% in the third quarter highlights the “bumpy road ahead,” indicating there may be a need for more Fed action and for it to hold interest rates higher for longer.
Write to Megan Leonhardt at [email protected]
Read the full article here