The Commerce Department reported on Wednesday that inflation edged higher in October as the Federal Reserve looked for clues on how much it should lower interest rates.
this personal consumption expenditures price indexA broad gauge of inflation that the Fed prefers rose 0.2% this month to show 2.3% inflation in the 12 months. While the annual rate was higher than September’s 2.1% level, both were in line with the Dow Jones consensus forecast.
Excluding food and energy, core inflation data was stronger, with a monthly increase of 0.3% and an annual increase of 2.8%. Both also met expectations. The annual rate increased by 0.1 percentage points from the previous month.
Prices of services were the main cause of inflation this month, rising 0.4%, while prices of goods fell 0.1%. Food prices were little changed, while energy prices fell 0.1%.
Federal Reserve policymakers have set the inflation target at an annual rate of 2%; PCE inflation has been above this level since March 2021 and peaked at around 7.2% in June 2022, prompting the Federal Reserve to take proactive measures action to raise interest rates.
Although inflation has fallen sharply since the Fed began tightening, it remains a thorny issue for households and figures prominently in presidential campaigns. Although inflation has decelerated over the past two years, its cumulative impact has hit consumers hard, especially those on lower wages.
Consumer spending remained strong in October but was down slightly from September. The report showed that current US dollar expenditures increased by 0.4% as expected for the month, while personal income increased by 0.6%, much higher than the 0.3% expected.
On the inflation front, although inflation rates are expected to slow as rents fall, costs associated with housing continue to increase. Residential prices rose 0.4% in October.
The Fed follows a broad range of indicators to measure inflation but exclusively uses personal consumption expenditures data for forecasting and as its primary policy tool. The data are considered broader than the Labor Department’s Consumer Price Index and are adjusted for consumer spending behavior, such as replacing more expensive goods with cheaper ones.
Officials tend to view core inflation as the better long-term indicator but use both data when considering policy measures.
Previously, the Federal Reserve cut interest rates in September and November by a total of three-quarters of a percentage point. Although November’s cuts occurred after the month covered by the report, the move had been widely expected.
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