THE US Federal Reserve’s preferred measure of underlying US inflation posted its biggest monthly gain since April, bolstering the case for a slower pace of interest-rate cuts following last month’s outsized reduction.
The so-called core personal consumption expenditures price index, which strips out volatile food and energy items, increased 0.3 per cent in September, and 2.7 per cent from a year earlier, according to Bureau of Economic Analysis data out on Thursday (Oct 31). Overall inflation was 2.1 per cent, the lowest since early 2021 and just above the central bank’s 2 per cent goal.
Inflation-adjusted consumer spending advanced 0.4 per cent, an acceleration from the prior month and supported by continued growth in wages and salaries. The savings rate fell to 4.6 per cent, 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 authorise a second reduction at the conclusion of its Nov 6 to 7 policy meeting following an initial rate cut in September.
Stock futures, Treasury yields and the US 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 per cent. Goods prices excluding food and energy rose by 0.1 per cent. Food prices were up 0.4 per cent, the most since early this year.
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The spending data also points to ongoing consumer resilience, particularly for merchandise. Overall services spending, which makes up the bulk of household consumption, rose 0.2 per cent in September. Goods spending advanced 0.7 per cent, an area where many retailers have lowered prices to lure in shoppers.
Wages and salaries rose 0.5 per cent for a second month before adjusting for inflation, supporting spending. But once adjusted for inflation and factoring in declines in interest and proprietors’ income, real disposable incomes only rose 0.1 per cent.
The data follows initial estimates of third-quarter gross domestic product published on Wednesday by the Bureau of Economic Analysis, which showed robust economic growth powered by a resilient consumer and a surge in defence 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 on Thursday by the Bureau of Labor Statistics (BLS) showed the employment cost index moderated in the three months ending in September. The Employment Cost Index rose 0.8 per cent, the smallest advance since mid-2021. The more temperate reading aligns with Fed chair Jerome Powell’s assessment last month that “the labour 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 south-eastern 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. BLOOMBERG