(Bloomberg) — A core gauge of US inflation accelerated in September, while consumer spending stayed resilient, indicating widespread price pressures and solid demand that reinforce the Federal Reserve’s case for another big interest-rate hike next week.
The personal consumption expenditures price index excluding food and energy, a key measure of underlying inflation tracked by the Federal Reserve, rose 0.5% from a month earlier, Commerce Department data showed Friday. From a year ago, the gauge was up 5.1%, a pickup from the prior month, though slightly below economists’ forecasts.
The overall PCE price index increased 0.3% in the month and was up 6.2% from a year ago, still well above the central bank’s 2% goal.
The median estimates in a Bloomberg survey of economists were for a 0.5% monthly increase in the core PCE price index and a 0.3% advance in the overall measure. US stock futures and treasuries remained lower following the report.
Purchases of goods and services, adjusted for changes in prices, rose a stronger-than-expected 0.3% last month after a similar gain in August. The gain reflected increased spending on both goods and services.
Similar to the consumer price index data out earlier this month, the latest figures underscore the severity and breadth of US inflation. They also show why Fed policy makers, striving to get inflation back to its 2% goal, will likely raise interest rates by yet another 75 basis points at next week’s meeting.
A strong labor market, solid wage gains and savings have helped households weather higher prices for everything from groceries to rent. Yet it’s unclear just how long consumers and their finances will be able to hold up.
The saving rate fell to 3.1% in September, just above the lowest rate since 2008, the Commerce Department report showed.
Some companies are flagging changes in consumer behavior — from trading down to buying less — and a recent Census Bureau survey found four in 10 households said it has been somewhat or very difficult to cover usual household expenses.
Wages Rise
A separate report out Friday showed the employment cost index, a broad gauge of wages and benefits also watched closely by Fed officials, increased a brisk 1.2% in the third quarter from the prior three months. Sustained wage increases have been a persistent challenge for the Fed as it seeks to control rapid inflation.
The Fed is in the midst of its most aggressive tightening campaign since the 1980s, something that’s weighed notably on the housing market but that has yet to make a meaningful dent in the pace of inflation. That said, the rapid pace of rate hikes is poised to weigh on the labor market and further slow the broader economy in coming months. Central bankers will likely soon debate when it’s appropriate to slow the pace of increases.
Friday’s report showed solid spending on goods and services. Inflation-adjusted outlays for merchandise rose 0.4% after being little changed in the prior month, in part reflecting spending on prescription drugs and new cars.
Spending on services rose 0.3%, a deceleration from the 0.5% gain in the previous month.
The data help gauge consumer momentum entering the final months of the year. The government on Thursday reported third-quarter gross domestic product rising an annualized 2.6%, helped by a significant boost from net exports and the durability of consumers and businesses. Still, an underlying gauge of demand rose just 0.5% in the period, one of the slowest paces since the start of the pandemic.
Personal income, unadjusted for inflation, was up 0.4% for a third straight month, Friday’s report showed. Wages and salaries accelerated from the prior month, posting a 0.6% advance.
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