September 2024 PCE Inflation: What's Changing?

In September, inflation inched up, drawing closer to the Federal Reserve’s target. The personal consumption expenditures price index saw a 0. 2% increase, with an annual rate of 2. 1%, right in line with predictions. The Fed heavily relies on PCE readings, though they also consider other indicators. The target inflation rate is set at 2%, a mark not hit since February 2021. Compared to August, the headline rate dipped slightly by 0. 2 percentage points. Surprisingly, if you exclude food and energy, the inflation rate jumps to 2. 7%. This core measure increased by 0. 3% monthly. The annual rate is slightly higher than predicted but matches August's figures. Service prices are driving inflation higher, with a 0. 3% boost, whereas goods prices dropped by 0. 1%. This is the fourth time in the last five months that goods prices have decreased. Housing prices also eased off a bit, rising only 0. 3%. Energy prices, on the other hand, fell by 2%. This report comes as markets expect the Fed to lower its interest rates at their upcoming meeting.

The Fed cut rates by 0. 5 percentage points in September, an unusual move during an economic expansion. Even though policymakers are confident that inflation is moving towards the target, they're concerned about the job market. Despite hiring continuing and low layoffs, there are worries. Another report on unemployment claims, released the same day, shows firms aren't laying off workers. Initial filings for unemployment benefits were down to 216, 000 for the week ending October 26, below expectations. The Commerce Department’s report revealed that both income and spending remained steady in September. Personal income rose by 0. 3%, slightly more than August and as expected. Consumer spending climbed by 0. 5%, exceeding expectations by 0. 1 percentage points. In another data point, the Bureau of Labor Statistics reported that the employment cost index grew by 0. 8% in the third quarter, slightly below estimates. Over a 12-month period, this index, which includes wages, salaries, and benefits, increased by 3. 9%, compared to a 2. 4% rise in the consumer price index.

Actions