Inflation rose in October as the Federal Reserve looks for clues about how much it should cut interest rates, the Commerce Department said Wednesday.
The personal consumption expenditures price index, a broad measure that the Fed prefers as an inflation gauge, rose 0.2% this month and showed an annual inflation rate of 2.3%. Both were in line with the Dow Jones consensus forecast, although the annual rate was higher than the 2.1% level in September.
Excluding food and energy, core inflation showed even stronger numbers, up 0.3% month-on-month and up 2.8% annually. Both also met expectations. The annual figure was 0.1 percentage point higher than the previous month.
Services prices drove most of the inflation for the month, rising 0.4%, while goods prices fell 0.1%. Food prices were little changed, while energy prices fell by 0.1%.
Fed policymakers target inflation of 2% annually; PCE inflation has been above that level since March 2021 and peaked around 7.2% in June 2022, prompting the Fed to pursue an aggressive rate hike campaign.
Stocks were mixed after the release, with the Dow Jones Industrial Average up about 100 points, although the S&P 500 and Nasdaq Composite were both negative. Interest rates on government bonds fell.
Despite the rise in headline inflation, traders raised their expectations that the Fed would approve another rate cut in December. According to CME Group's FedWatch measure, the probability of a cut in the central bank's key interest rates stood at 66% as of Wednesday morning.
Although inflation has fallen significantly since the Fed began tightening, it remains a vexing issue for households and has played a prominent role in the presidential race. Despite the slowdown over the past two years, the cumulative effects of inflation have hit consumers hard, especially at the lower end of the wage scale.
Consumer spending was still solid in October, although it declined slightly from September. Spending in current dollars rose 0.4% this month, as forecast, while personal income rose 0.6%, well above the 0.3% estimate, the report showed.
The personal savings rate fell to 4.4%, the lowest level since January 2023.
On the inflation side, housing-related costs have continued to drive up the numbers, despite expectations that the pace would cool as rents fell. House prices rose by 0.4% in October.
The Fed tracks a broad dashboard of indicators to measure inflation, but uses the PCE figure specifically for its forecasts and as its main policy tool. The data is considered broader than the Department of Labor's Consumer Price Index and is adjusted for consumer spending behavior, such as substituting cheaper items for more expensive items.
Officials tend to view core inflation as a better measure of the long term, but use both figures when considering policy steps.
The publication follows successive rate cuts by the Fed in September and November, totaling three-quarters of a percentage point. Although the November cut came after the month covered by the report, the move had been widely anticipated by markets.
Fed officials indicated at their November meeting that they were confident inflation was moving toward the 2% target, although members argued for a gradual reduction in interest rates as they recognized uncertainty about how much cuts will be necessary.
