The numbers: The cost of goods and services rose a higher-than-expected 0.4% in September, keeping the pressure on the Federal Reserve as it weighs whether to raise interest rates again.
Inflation as measured by the so-called PCE price index rose 0.4% for the second month in a row, spurred in part by higher oil prices.
The index has risen 3.4% over the past year, unchanged from the prior month, the government said Friday. That leaves it well above the Federal Reserve’s 2% target.
The PCE price gauge is the Fed’s preferred measure of inflation.
The core PCE rate of inflation increased a touch slower last month at 0.3%. That matched the forecast of economists polled by The Wall Street Journal.
The core rate omits volatile food and energy costs and is viewed by the Fed as a better predictor of future inflation trends.
In a bit of good news, the rate of core inflation over the past year fell a tick to 3.7% from 3.8%, marking the lowest level since June 2021. Wall Street investors reacted favorably to the decline.
The increase in inflation last month is unlikely to force the Fed to raise interest rates when senior officials meet next week, economists and investors say. Wall Street widely expects the Fed to leave rates unchanged.
Big picture: The worst bout of inflation in 40 years is slowly receding, but it still could be a few years before prices return to low pre-pandemic levels.
The Fed is trying to get inflation down to its 2% target, a goal it doesn’t expect to reach until as far out as 2026. The central bank has jacked up interest rates to the highest level in years to try to tame prices.
So far rising rates have not slowed the economy, but higher borrowing costs are all but certain to depress growth in the months ahead.
Looking ahead: “Inflation should continue to decline as the labor market softens somewhat and wage pressures abate,” said chief economist Gus Faucher of PNC Financial Services.
“The speed of the slowing in inflation depends on whether there is a recession,” he added. “If there is a recession, inflation should be back at the Fed’s 2% objective by this time next year. But if economic growth slows, but not falters, then inflation will not get back to 2% until late 2024 or early 2025.”
Market reaction: The Dow Jones Industrial Average
DJIA,
and S&P 500
SPX,
were set to open mixed in Friday trades.
The yield on the 10-year Treasury note
TMUBMUSD10Y,
edged up to 4.87%.
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