Inflation measured by personal spending rose in October in line with expectations, potentially signaling to the Federal Reserve to hold interest rates steady and consider cutting in 2024, data released on Thursday showed.
The personal consumption expenditures price index, excluding food and energy prices, increased by 0.2% for the month and 3.5% year-over-year, according to the Commerce Department, aligning with Dow Jones consensus.
Headline inflation remained flat for the month and at a 3% rate over 12 months, with energy prices falling 2.6% and food prices increasing 0.2%. Goods prices decreased 0.3%, while services rose 0.2%, with international travel, health care, food services, accommodations, and gasoline leading the gainers.
Both personal income and spending rose 0.2% for the month, meeting estimates and indicating that consumers are keeping pace with inflation.
While the public closely watches the Labor Department’s consumer price index as an inflation measure, the Fed prefers the core PCE reading, which focuses on what people actually spend, adjusting for consumer behavior when prices fluctuate.
In other economic news, weekly jobless claims rose to 218,000, slightly below the 220,000 estimate, while continuing claims surged to 1.93 million, the highest level since Nov. 27, 2021, according to the Labor Department.
The Fed is expected to be done raising interest rates this cycle, with markets already pricing in the equivalent of five quarter percentage point rate cuts in 2024. The fed funds rate, the central bank’s benchmark level for short-term lending, is currently targeted in a range between 5.25%-5.5%, its highest in more than 22 years.
Despite other economic signals showing the economy to be in good shape, some Fed officials have reported a slowdown in consumer spending. Richmond Fed President Thomas Barkin stated that he is hearing consumers slowing down, though not falling off the table.
The Fed’s inflation report comes on the same day as news from the eurozone, where headline inflation fell to 2.4% over a 12-month period, though core inflation remained at 3.6%. The European Central Bank targets 2% as a healthy inflation level, similar to the Fed.
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