Higher energy costs accelerated price pressures in September, leaving inflation well above the Federal Reserve’s 2 percent target.
September’s Personal Consumption Expenditure (PCE) Price Index—the Fed’s preferred inflation gauge—rose to an annual rate of 3.6 percent, from 3.4 percent, according to the Bureau of Economic Analysis.
This was in line with economists’ expectations.
From August to September, PCE inflation advanced 0.5 percent.
The oil-price shock from the war in Iran continues to lift headline inflation. While underlying inflation trends remain stable, they have been ticking up gradually.
After stripping out volatile energy and food, the 12-month PCE inflation rate edged up to 3.1 percent, from 3 percent in August.
Core PCE prices rose 0.3 percent. August’s month-over-month reading was revised slightly upward to 0.3 percent from 0.2 percent.
The Federal Reserve maintained a hawkish stance at the end of October’s policy meeting. Officials kept interest rates on hold after following through on a quarter-point hike last month.
Chairman Kevin Warsh reaffirmed the central bank’s commitment to bringing inflation back down to the Fed’s 2 percent target.
Progress is being made, but inflation remains too high, he told reporters at the post-meeting news conference.
“So as we widen the frame to survey the broad economic and financial picture, real activity is clearly pointing in the right direction. That’s good news. But inflation is too high,” Warsh said in his opening remarks.
Elevated inflation is not harming U.S. growth prospects or stopping consumers from opening their wallets.
The bureau also reported on Oct. 29 that the economy expanded 3.4 percent in the third quarter, from 2.2 percent in the previous quarter.
Business investment from the artificial intelligence (AI) boom and consumer spending drove last quarter’s stronger-than-expected growth rate.
In September, personal spending rose by 0.5 percent, and personal incomes edged up 0.2 percent, the bureau said.
“Although the inflation data came in line with expectations, because it is higher than the prior month, it emphasizes the problem we face—inflation is not coming down to the 2 percent target,” Chris Zaccarelli, chief investment officer for Northlight Asset Management, said in a note emailed to The Epoch Times.
“The economy is also doing well. The United States is growing much faster now than it was during the decades of 2 percent average annual growth.”
Early estimates from the New York Fed suggest fourth-quarter growth could also be above 2 percent.
Beyond robust economic conditions, the labor market remains stable.
Unemployment claims ticked lower to 194,000 last week, also below economists’ expectations. Recurring claims—the number of Americans still receiving jobless benefits—also fell to 1.701 million, according to the Department of Labor.
Plateauing Consumer Inflation
Outlooks for October Consumer Price Index data suggest inflation may have plateaued.
The Cleveland Fed’s Nowcasting Model expects the annual consumer inflation rate to hold steady at 3.7 percent.
The 12-month core inflation rate is also projected to dip to 2.5 percent, from 2.6 percent.
But this might not stop the Federal Reserve from raising interest rates again in December.
Current inflation challenges stem from strong demand and supply constraints, says Jeffrey Roach, chief economist for LPL Financial.
“The challenge for policymakers right now is managing the view that this short-term demand push will be appeased by a disinflationary productivity boost in the future,” Roach said in an emailed note to The Epoch Times.
“The problem is the productivity boost will not show up as quickly as some think.”
Traders overwhelmingly expect the central bank to raise the benchmark federal funds rate by another quarter point to a new target range of 4 percent to 4.25 percent, according to CME FedWatch futures market data.
There will be plenty of data for Fed officials to digest heading into the Dec. 8–Dec. 9 meeting, including two jobs reports and October’s CPI report.
The November numbers will be published shortly after the central bank meets.
