Inflation accelerated in September, but consumer spending was even stronger than expected, according to a Commerce Department report Friday.
The core consumer spending price index, which the Federal Reserve uses as a key indicator of inflation, rose 0.3% for the month, in line with the Dow Jones estimate and above the 0.1% level for August.
Despite the price increase, private spending remained higher, rising 0.7%, better than the 0.5% forecast. Personal income rose 0.3%, a tenth of a percentage point below the estimate.
Taking volatile food and energy prices into account, the PCE index rose 0.4%. Year-over-year, core PCE rose 3.7%, a tenth less than in August, while total PCE rose 3.4%, the same as the previous month.
The Fed is focusing more on core inflation because it believes it provides a better view of long-term price trends. Core PCE peaked at about 5.6% in early 2022 and has largely been on a downward trend since then, although it is still well above the Fed’s annual target of 2%. The Fed prefers PCE as a measure of inflation because it takes into account changing consumer behavior, such as substitution for cheaper goods as prices rise.
Markets largely ignored the report, with stock market futures pointing slightly higher and Treasury yields mixed across the curve.
“Although consumer prices rose faster than expected month-over-month, core inflation continues to slow, and this report is unlikely to change the Fed’s view that inflation will slow in the coming months as demand weakens.” said Jeffrey Roach, chief economist at LPL Financial. “Ultimately, spending will slow after consumers spend more than they earn for several months.”
This is the last inflation report the Fed will see before its two-day policy meeting next week. According to CME Group, traders expect a near 100 percent chance that the central bank will not announce a rate hike at the end of Wednesday’s meeting.