Inflation Edged Higher in October, Igniting Debate Over Interest Rates
Inflation rose at a 0.2% monthly rate in October, according to the personal consumption expenditures price index (PCE), a broader measure preferred by the Federal Reserve. The 12-month inflation rate came in at 2.3%, slightly above the consensus forecast. Core inflation, excluding food and energy, increased 0.3% on a monthly basis and 2.8% annually, also matching expectations.
Services prices, such as housing, dominated the inflation growth, increasing 0.4%. Goods prices, on the other hand, fell 0.1%. Food prices remained stable, and energy prices dropped 0.1%. The 2% annual inflation rate, targeted by the Federal Reserve, has been elusive since March 2021.
Despite the rise in inflation, traders increased bets that the Fed would lower interest rates in December. Odds of a quarter-point rate cut stood at 66% following the report.
Consumer spending remained robust, with current-dollar expenditures rising 0.4% in October, driven by a 0.6% increase in personal income. The personal saving rate, however, slid to 4.4%, its lowest level since January 2023.
The Fed closely monitors various indicators, including the PCE, to gauge inflation and inform policy decisions. Core inflation is considered a better long-term gauge of price pressures, but the central bank uses both indices in determining its interest rate trajectory.
The release came amid expectations of further interest rate cuts, following back-to-back reductions in September and November. Fed officials signaled confidence that inflation was heading towards the 2% target, but highlighted the need for a gradual approach to rate cuts.
