PCE inflation October 2024

Inflation rose slightly in October as the Federal Reserve looks for clues on how much it should cut interest rates, the Commerce Department reported Wednesday.

The personal consumption expenditures price index, a broad measure the Federal Reserve prefers as a gauge of inflation, rose 0.2% for the month and showed a trailing 12-month inflation rate of 2.3%. Both were in line with the Dow Jones consensus forecast, although the annual rate was higher than the 2.1% level in September.

Excluding food and energy, core inflation showed even stronger readings, up 0.3% month-on-month and an annual reading of 2.8%. Both also met expectations. The annual rate was 0.1 percentage point higher than the previous month.

Services prices drove most of the month’s inflation, rising 0.4%, while goods fell 0.1%. Food prices barely changed, while energy fell 0.1%.

Fed authorities aim for inflation of 2% annually. PCE inflation has been above that level since March 2021 and peaked at around 7.2% in June 2022, prompting the Federal Reserve to embark on an aggressive rate-hiking campaign.

Stocks were mixed after the release, with the Dow Jones Industrial Average rising about 100 points, although the S&P 500 and Nasdaq Composite were negative. Treasury yields fell.

Despite rising headline inflation, traders increased their bets that the Federal Reserve would approve another rate cut in December. The odds of a quarter-percentage-point reduction in the central bank’s key borrowing rate were 66% as of Wednesday morning, according to CME Group’s FedWatch measure.

While the inflation rate has fallen significantly since the Federal Reserve began tightening its policies, it remains a vexing issue for households and featured prominently in the presidential race. Despite its slowdown over the past two years, the cumulative effects of inflation have hit consumers hard, particularly at the lower end of the pay scale.

Consumer spending remained strong in October, although it declined slightly from September. Spending in current dollars rose 0.4% month-over-month, as expected, while personal income rose 0.6%, well above the 0.3% estimate, the report showed.

The personal savings rate fell to 4.4%, its lowest level since January 2023.

On the inflation side, housing-related costs have continued to drive numbers, despite expectations that the pace would cool as rents fall. House prices rose 0.4% in October.

The Federal Reserve follows a broad panel of indicators to measure inflation, but uses the PCE figure specifically for its forecasts and as its primary policy tool. The data is considered broader than the Labor Department’s consumer price index and is adjusted for consumer spending behavior, such as replacing more expensive items with less expensive ones.

Officials tend to view core inflation as a better long-term indicator, but use both figures when considering policy measures.

The release follows consecutive rate cuts by the Federal Reserve in September and November totaling three-quarters of a percentage point. Although the November reduction came after the month covered by the report, markets had been widely anticipating the move.

Fed officials at their November meeting indicated confidence that inflation was moving toward the 2% target, although members argued for a gradual reduction in interest rates while acknowledging uncertainty about how many cuts will be necessary.