FILE-Consumers look at items displayed at a grocery store in Washington, D.C., on February 15, 2023. (Photo by STEFANI REYNOLDS/AFP via Getty Images)
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An inflation gauge monitored by the Federal Reserve has dipped to its lowest level since 2021.
Inflation surged at 7.1% in June 2022 after the economy transitioned from the pandemic recession at a time of shortages of parts and labor, the Associated Press reported, citing the inflation gauge released by the federal government on Thursday.
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The AP noted that inflation has steadily improved over the past two years after supply chains rebounded from the pandemic disruptions and the Federal Reserve raised its key interest rate to a 40-year high, affecting home sales and car purchases.
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What causes inflation?
There are three factors that could lead to inflation which include demand-pull inflation, cost-push inflation and built-in inflation.
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The inflation gauge known as the personal consumption expenditures price index accounts for changes in how consumers shop when inflation spikes. The AP noted that the PCE index shows a lower inflation rate than the Consumer Price Index.
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Citing the Commerce Department’s latest report, the AP noted that prices rose just 2.1% in September from 12 months earlier, down from a 2.3% year-over-year rise in August. This is narrowly above the Fed’s 2% inflation target and is in line with readings in 2018, well before prices began surging after the pandemic recession.
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The AP noted this is narrowly above the Federal Reserve’s 2% inflation target and is similar to data in 2018, before prices started to soar after the pandemic recession. On a monthly basis, prices ticked up 0.2% from August to September, up narrowly from a 0.1% increase from July to August.
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Meanwhile, core prices, which exclude volatile food and energy costs, increased 2.7% in September from a year earlier. On a monthly basis, core prices jumped 0.3% from August to September, up from just 0.1% from July to August.
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For the past six months, core inflation has fallen to a 2.3% annual rate, down from 2.5% in August. The AP noted that economists expect the Federal Reserve to slash its key interest rate by a quarter-point when it meets next week.
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According to the AP, the Federal Reserve tends to favor the inflation gauge that the government issued Thursday — the personal consumption expenditures price index, which accounts for changes in how consumers shop when inflation spikes. The PCE index shows a lower inflation rate than the Consumer Price Index.
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The federal government will issue its October jobs report on Friday before next week’s presidential election.
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