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US inflation indicator rises by less than forecast as spending increases

Reade Pickert, Bloomberg News on

Published in News & Features

A key gauge of U.S. consumer prices posted the second-smallest increase this year while spending accelerated, offering hope that the Federal Reserve’s interest-rate hikes are cooling inflation without sparking a recession.

The personal consumption expenditures price index excluding food and energy, which Fed Chair Jerome Powell stressed this week is a more accurate measure of where inflation is heading, rose a below-forecast 0.2% in October from a month earlier, Commerce Department data showed Thursday.

From a year earlier, the gauge was up 5%, a step down from an upwardly revised 5.2% gain in September.

The overall PCE price index increased 0.3% for a third month and was up 6% from a year ago, still well above the central bank’s 2% goal.

Personal spending, adjusted for changes in prices, rose 0.5% in October, the most since the start of the year and largely reflecting a surge in outlays for merchandise.

Similar to consumer price index data last month, the report shows that while inflation is beginning to ease, it remains much too high. While a deceleration is certainly welcomed, Powell emphasized Wednesday that the U.S. is far from price stability and that it will take “substantially more evidence” to provide comfort that inflation is actually declining.

 

Policymakers are expected to continue raising interest rates into next year, albeit at a slower pace, and remain restrictive for some time.

The median estimates in a Bloomberg survey of economists were for a 0.3% monthly increase in the core PCE price index and a 0.4% advance in the overall measure. The S&P 500 rose, the dollar fell and 10-year Treasury yields fluctuated.

Underpinned by a resilient labor market and sustained wage increases, the pickup in household spending suggests a solid start to fourth-quarter gross domestic product.

Inflation-adjusted outlays for merchandise jumped 1.1% in October, fueled by new motor vehicle purchases. Spending on services climbed 0.2%, boosted by outlays for health care, food services and accommodations, housing and utilities.

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