The Commerce Department reported Wednesday that inflation rose in October as the Federal Reserve looks for clues on how far to cut interest rates.
The Personal Consumption Expenditures Price Index, a broad measure favored by the Federal Reserve as a gauge of inflation, rose 0.2% month-over-month and showed a 12-month inflation rate of 2.3%. Both were in line with Dow Jones forecasts, although the annual rate was above the 2.1% level in September.
Excluding food and energy, core inflation showed stronger readings, with an increase of 0.3% on a monthly basis and an annual reading of 2.8%. They both met expectations as well. The annual rate was 0.1 percentage point higher than the previous month.
Services prices accounted for most of the inflation during the month, rising 0.4%, while goods fell 0.1%. Food prices were little changed, while energy prices fell by 0.1%.
Federal Reserve policymakers target inflation at an annual rate of 2%. PCE inflation has been above this level since March 2021 and peaked at around 7.2% in June 2022, prompting the Fed to launch an aggressive campaign to raise interest rates.
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 negative. Treasury yields fell.
Despite the rise in headline inflation, traders increased their bets that the Fed will agree to another rate cut in December. The odds of cutting the central bank's key borrowing rate by a quarter of a percentage point were 66% on Wednesday morning, according to CME Group's FedWatch gauge.
Although the inflation rate has fallen significantly since the Fed began tightening its policies, it remains a troubling problem for families and figures prominently in the presidential race. Although inflation has slowed 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 strong in October, although down slightly from September. The report showed that current expenditures in dollars rose by 0.4% on a monthly basis, as expected, while personal income jumped by 0.6%, much higher than estimates of 0.3%.
The personal savings rate fell to 4.4%, its lowest level since January 2023.
On the inflation side, housing-related costs continued to boost numbers, despite expectations that the pace would moderate as rents fell. Home prices rose 0.4% in October.
The Fed follows a broad palette of indicators to measure inflation but specifically uses the PCE figure for its forecasts and as its main policy tool. The data is broader than the Department of Labor's Consumer Price Index and adjusts for behavior in consumer spending such as the replacement of more expensive items with less expensive ones.
Officials tend to view core inflation as a better long-term measure, but use both numbers when considering policy moves.
The issuance follows successive interest rate cuts by the Fed in September and November totaling three-quarters of a percentage point. Although the November downgrade occurred after the reporting month, the move was widely expected by markets.
Fed officials indicated at their November meeting that they were confident that inflation was heading toward the 2% target, although members called for gradual cuts in interest rates while acknowledging uncertainty about the size of the cuts needed.
