Surprising Spike in PCE Inflation Shocks Economists in September 2024

Inflation in the US rose slightly in September, inching closer to the Federal Reserve’s target, as per a Commerce Department report released on Thursday. The report revealed a seasonally adjusted 0.2% increase in the personal consumption expenditures price index for the month, with the 12-month inflation rate reaching 2.1%, in line with estimates from Dow Jones.
The Federal Reserve aims for a 2% annual inflation rate, a goal that has not been met since February 2021. While the headline rate for September was down 0.2 percentage points from August, the core inflation rate, excluding food and energy, stood at 2.7%. The increase of 0.3% in the core measure on a monthly basis was higher than forecast, but the annual rate remained the same as in August.
The rise in inflation was largely attributed to an uptick in services prices by 0.3%, while goods prices saw a decrease of 0.1%. Housing prices increased by 0.3%, but energy goods and services fell by 2%.
Markets are anticipating another interest rate cut by the Federal Reserve in its upcoming meeting, following a half percentage point reduction in September, a move rarely seen during economic expansion. Despite signs of inflation edging towards target levels, concerns over the labor market persist, with the majority of indicators pointing towards steady hiring and low layoff rates.
A separate Labor Department report released on Thursday indicated a decrease in initial unemployment benefit claims to 216,000 for the week ending Oct. 26, lower than the forecasted 230,000. Additionally, the Commerce Department reported that income and spending remained resilient in September, with personal income rising by 0.3% and consumer spending by 0.5%.
Moreover, the Bureau of Labor Statistics reported an increase of 0.8% in the employment cost index for the third quarter, slightly below expectations. On a 12-month basis, the index, measuring wages, salaries, and benefits, rose by 3.9%, compared to a 2.4% increase in the consumer price index.
The data points to a mixed economic landscape, with inflation nearing target levels while the labor market continues to be of concern. The upcoming Federal Reserve meeting will be closely watched for further policy decisions in response to the evolving economic conditions.