Inflation is rising faster than expected, the central bank’s preferred PCE price monitor shows

Last updated: October 27, 2023 at 9:31 am ET

Originally published: October 27, 2023 at 8:36 am ET

The numbers: Prices of goods and services rose a better-than-expected 0.4% in September, keeping pressure on the Federal Reserve as it weighs whether to raise interest rates again.

Inflation, known as the PCE price index, rose 0.4% for the second month in a row, fueled in part by higher oil prices.

The code is up…

Numbers: Prices of goods and services rose a better-than-expected 0.4% in September, keeping pressure on the Federal Reserve as it weighs whether to raise interest rates again.

Inflation, known as the PCE price index, rose 0.4% for the second month in a row, fueled in part by higher oil prices.

The index rose 3.4% over the past year, unchanged from the previous month. The government said on Friday. That’s well above the Federal Reserve’s 2% target.

The PCE price measure is the central bank’s preferred measure of inflation.

The core PCE rate of inflation picked up slowly last month, touching 0.3%. This matches the forecast of economists polled by The Wall Street Journal.

The core rate excludes volatile food and energy costs and is seen by the central bank as the best predictor of future inflation trends.

In good news, the core inflation rate fell to 3.7% from 3.8% last year, marking the lowest level since June 2021. Wall Street investors responded favorably to the decline.

Economists and investors say the central bank is unlikely to be forced to raise interest rates when senior officials meet next week as inflation picked up last month. Wall Street widely expects the Fed to leave rates unchanged.

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Big picture: Inflation, the worst in 40 years, is slowly abating, but it may take years for prices to return to low pre-pandemic levels.

The central bank is trying to reduce inflation to its 2% target, a target it does not expect to reach until 2026. The central bank has raised interest rates to their highest levels in years to try to control prices.

So far, rising rates have not dampened the economy, but higher borrowing costs are sure to dampen growth in the coming months.

Looking ahead: “Inflation should continue to ease as the labor market softens somewhat and wage pressures ease,” said Gus Faucher, chief economist at PNC Financial Services.

“The speed at which inflation comes down depends on whether there is a recession,” he added. “If there is a recession, inflation should return to the Fed’s 2% objective by this time next year. But if economic growth slows, but doesn’t stop, inflation won’t be 2% until late 2024 or early 2025.

Market Reaction: Dow Jones Industrial Average

DJIA

and the S&P 500

SPX

were set to open in mixed trade on Friday.

The yield on the 10-year Treasury note

TMUBMUSD10Y

went up to 4.87%.

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