A shopper at a grocery store in Miami, Florida. Photographer: Joe Raedle/Getty Images.
The Federal Reserve’s preferred measure of underlying inflation accelerated in October from a year ago, helping explain policymakers’ more cautious approach to lowering interest rates.
The so-called core personal consumption expenditures (PCE) price index, which strips out volatile food and energy items, increased 2.8 percent from October of 2023 to last month, and it rose 0.3 percent from September to October of this year, according to Bureau of Economic Analysis (BEA) data out last Wednesday. A good part of that acceleration was due to the impact of higher stock prices on the calculation.
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Inflation-adjusted consumer spending edged up 0.1 percent after an upwardly revised 0.5 percent gain in September, consistent with uneven demand over the course of the year. On a three-month annualized basis—a metric that economists say paints a more accurate picture of the trajectory of inflation—the core PCE price gauge advanced 2.8 percent.
The figures support recent comments by many Fed officials that there’s no rush to cut interest rates so long as the labor market remains healthy and the economy continues to power ahead.
While inflation is taking time to recede back to the Fed’s 2 percent target, the policy path ahead will be complicated by President-elect Donald Trump’s economic agenda. Stanley Black & Decker Inc. said it’s already considering raising prices early next year in anticipation of higher tariffs.
| Metric | Actual | Estimate |
|---|---|---|
| PCE price index (month-over-month) | +0.2% | +0.2% |
| Core PCE price index (month-over-month) | +0.3% | +0.3% |
| PCE price index (year-over-year) | +2.3% | +2.3% |
| Core PCE price index (year-over-year) | +2.8% | +2.8% |
| Real consumer spending (month-over-month) | +0.1% | +0.2% |
The pickup in inflation was due to services prices, reflecting a surge in portfolio management fees that coincided with a rally in stock prices. Core services prices—a closely watched category that excludes housing and energy—climbed 0.4 percent from a month earlier, the most since March. Core goods costs were unchanged.
A separate government report Wednesday showed gross domestic product (GDP) increased an unrevised 2.8 percent in the third quarter, fueled by healthy advances in household and business spending.
Income figures from the October PCE report offer the possibility for healthy spending growth in the months ahead. Inflation-adjusted disposable personal income increased 0.4 percent last month, the most since January. Moreover, nominal wages and salaries rose a solid 0.5 percent, while the savings rate increased for the first time since the start of the year.
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