ALBAWABA – US inflation is skyrocketing as consumer spending rose in September and the core personal consumption expenditures price index, the United States (US) Federal Reserve’s (Fed) preferred measure of underlying inflation, sped to a four-month high.
The core personal consumption expenditures price index strips out the volatile food and energy components, which is why the Fed prefers it to most other indexes as a gauge of US inflation.
Notably, the core index rose 0.3 percent in September, according to the Bureau of Economic Analysis report, out Friday, while Inflation-adjusted consumer spending jumped 0.4 percent last month, to a four-month high.
If anything, this indicates the possibility of another rate hike come November, Bloomberg reported.
However, the stronger-than-expected increase in spending, accompanied by elevated monthly US inflation readings, came against the backdrop of higher costs for services like housing, according to Reuters. Soon, spending is seen cooling off in early 2024 as excess savings accumulated during the pandemic start running out, offsetting concerns of another rate hike next month.
Consumer spending accounts for more than two-thirds of US economic activity. It accelerated 0.7 percent last month after an unrevised 0.4 percent rise in August, the Bureau’s Department of Economic Analysis reported.
Higher Treasury yields help the Fed in their efforts to curb US inflation without further rate hikes, at least for now - Shutterstock
Nonetheless, growth is unlikely to match last quarter's blockbuster performance.
Consumer tapped their savings and put away less money with the saving rate dropping to 3.4 percent from 4.0 percent in August, Reuters reported.
Meanwhile, food prices climbed 0.3 percent and energy prices increased 1.7 percent and in the 12 months through September, the PCE price index advanced 3.4 percent, matching August's rise.
Excluding the volatile food and energy components, the PCE price index rose 0.3 percent, after edging up 0.1 percent in August, and the cost of housing services increased 0.5 percent.
Since March 2022, the Fed has raised its policy rate by nearly 5.25 percent to the current 5.25 percent-5.50 percent range in a bid to curb US inflation.
Policymakers are watching the super core PCE price index to try and gauge their progress and are expected to leave interest rates unchanged next Wednesday.
Despite the higher price index, a recent surge in US Treasury yields and stock market sell-off have tightened financial conditions, supplementing the function of higher interest rates.
