Key U.S. inflation gauge, spending pick up in mixed economic report

Keywords Economy / Inflation
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The Federal Reserve’s preferred measure of underlying U.S. inflation posted its biggest monthly gain since April, bolstering the case for a slower pace of interest-rate cuts following last month’s outsize reduction.

The so-called core personal consumption expenditures price index, which strips out volatile food and energy items, increased 0.3% in September, and 2.7% from a year earlier, according to Bureau of Economic Analysis data out Thursday. Overall inflation was 2.1%, the lowest since early 2021 and just above the central bank’s 2% goal.

Inflation-adjusted consumer spending advanced 0.4%, an acceleration from the prior month and supported by continued growth in wages and salaries. The savings rate fell to 4.6%, the lowest since 2023.

Thursday’s figures cap a month of upside surprises in key economic reports that will likely augur a cautious approach to interest-rate cuts in the months ahead. The Fed is widely expected to authorize a second reduction at the conclusion of its Nov. 6-7 policy meeting following an initial rate cut in September.

Stock futures, Treasury yields and the dollar all remained lower following the release.

Details of the September inflation numbers showed lingering price pressures in both goods and services. Services prices excluding housing and energy accelerated to 0.3%. Goods prices excluding food and energy rose 0.1%. Food prices were up 0.4%, the most since early this year.

The spending data also point to ongoing consumer resilience, particularly for merchandise. Overall services spending, which makes up the bulk of household consumption, rose 0.2% in September. Goods spending advanced 0.7%, an area where many retailers have lowered prices to lure in shoppers.

Wages and salaries rose 0.5% for a second month before adjusting for inflation, supporting spending. But once adjusted for inflation and factoring in declines interest and proprietors’ income, real disposable incomes only rose 0.1%.

The data follow initial estimates of third-quarter gross domestic product published Wednesday by the BEA, which showed robust economic growth powered by a resilient consumer and a surge in defense spending.

The reports offer mixed news for voters seeking to get a sense of where the economy stands heading into the Nov. 5 presidential election, with consumers continuing to spend even as inflation lingers.

Employment costs

Separate data published Thursday by the Bureau of Labor Statistics showed the employment cost index moderated in the three months ending in September. The ECI rose 0.8%, the smallest advance since mid-2021. The more temperate reading aligns with Fed Chair Jerome Powell’s assessment last month that “the labor market is not a source of elevated inflationary pressures.”

While hiring has generally moderated over the past year, layoffs remain low. Initial claims for US unemployment benefits fell last week to their lowest since May as southeastern states continued to recover from the impact of two severe storms. Continuing claims, a proxy for the number of people receiving benefits, also declined, falling to 1.86 million in the week ended Oct. 19.

The BLS will provide its monthly update on hiring and unemployment for October on Friday.

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One thought on “Key U.S. inflation gauge, spending pick up in mixed economic report

  1. I don’t know why the headlines are so pessimistic? In my lifetime, the US has NEVER had a run of inflation that was not followed by a recession. Achieving a “soft landing” is like a miracle.

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