Buckle Up For 2023: Inflation Is Still Rampant, New PCE Data Shows

U.S. inflation, as measured by the Federal Reserve's preferred Personal Consumption Expenditures (PCE) Price Index, remains unchanged at 6.2% annually in September, according to the Bureau of Economic Analysis.

The report indicates that the Federal Reserve's recent jumbo rate hikes have not yet reversed the persistent trend in core inflation, and it will therefore likely remain aggressive with another 75-basis point hike at its meeting next week.

The Data: In September, the Core PCE Price Index increased by 0.5% and increased from 4.9% to 5.1% on an annual basis, under analysts' estimates of 5.2%.

Read also: Fed Minutes Warn Investors Interest Rates May Be Higher For Longer

The PCE price index as a whole:

• Climbed by 0.3% in a single month
• It was up 6.2% from a year prior — significantly above the central bank's 2% target.
• Personal expenditure increased by 0.6%
• Personal income increased by 0.4% in September.
• LPL Financial called the personal spending figures "surprising."

In August, Fed Chair Jerome Powell cited former Fed chair Paul Volcker, who also sharply increased rates to combat inflation back in the 1980s. Powell has consistently stated that the central bank is committed to restoring price stability.

“We must keep at it until the job is done,” Powell said, invoking the title of Volcker’s 2018 autobiography, “Keeping At It.”

Powell has cautioned that the process will be difficult as it aims to create below-trend growth to lessen pricing pressures, which will lead unemployment to increase.

What do economists think? “Real consumer spending rose for the second consecutive month, suggesting that consumers are weathering the current inflationary environment surprisingly well,” LPL’s Chief Economist Jeffrey Roach opined.

“The savings rate dipped from last month as consumers are likely tapping into both savings and credit to support spending.”

Households have been able to cope with rising costs for goods and commodities owing to a stable labor market, salary increases, and savings.

Other economists polled by Bloomberg predicted that the FOMC would decide to hike rates by 75-basis points for a fourth consecutive meeting when it announces its decision at 2 p.m. on Wednesday in Washington.

“The most important thing to watch for is how Powell communicates the potential downshift in the pace of rate hikes,” said chief US economist Anna Wong. “He will want to avoid giving the impression that a pivot is imminent, especially not when core inflation is clearly still going strong.”
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