The US personal consumption expenditures price index was released on Thursday, revealing that the inflation gauge closely watched by the Federal Reserve has dropped to near pre-pandemic levels. Prices rose just 2.1% in September from a year earlier, barely above the Fed’s 2% inflation target. Core prices, excluding food and energy, rose 2.7%, prompting concerns that the Fed may slow its pace of rate cuts. Despite inflationary pressures, the latest signs show a sustained cooling of inflation, coming just days before the presidential election, where many voters are concerned about the economy.
Economists have debated whether Trump’s policies would worsen inflation, with experts suggesting that his tariffs and deportation plans could have negative effects on inflation. Vice President Kamala Harris has proposed measures to address rising costs, but the impact may be limited in the short term. Americans have been confident enough in their finances to continue spending, with a 0.5% increase reported from August to September. However, incomes rose more slowly, leading to a decrease in the savings rate.
Inflation peaked at 7.1% in June 2022, driven by supply chain disruptions and the Fed’s increase in interest rates. The inflation gauge, known as the personal consumption expenditures price index, shows a lower rate than the consumer price index, as it considers changes in consumer behavior when prices rise. The Fed is expected to further reduce its rate in the coming months, following a half-point cut last month and signs of slowing inflation.
The future rate cuts by the Fed are uncertain, with positive economic indicators like strong consumer spending and retail sales leading to speculation that the rate reductions may be slower than expected. The upcoming October jobs report is anticipated to provide a more complex picture of the labor market due to the impact of recent hurricanes on employment. Overall, the data suggests a mixed economic outlook, with inflation showing signs of cooling while uncertainties remain regarding future rate cuts by the Fed.
In conclusion, the latest release of the personal consumption expenditures price index indicates a slight decrease in inflation, providing some relief to the Federal Reserve and policymakers. Despite concerns about core price increases, the overall trend shows a cooling of inflation in recent months. The impact of future rate cuts on inflation and the economy remains uncertain, with economic indicators pointing to a complex and evolving situation. As the US economy continues to recover from the pandemic, policymakers will need to closely monitor inflation trends and make informed decisions to support sustainable growth.
