Inflation edged up in September and moved closer to the Federal Reserve’s target, according to a Commerce Department report released Thursday.
After seasonally adjusting, the personal consumption expenditures price index rose 0.2% this month and the 12-month inflation rate was 2.1%, both in line with Dow Jones estimates. The Fed uses personal consumption expenditures data as its main indicator of inflation, but policymakers also look at a variety of other indicators.
Fed officials have set an inflation target of 2% annually, a level not reached since February 2021. The overall interest rate dropped by 0.2 percentage points in September from August.
While headline data showed the central bank was close to its target, inflation excluding food and energy was at 2.7% after the so-called core measure rose 0.3% on the month. The annual rate was 0.1 percentage point higher than forecast but unchanged from August.
The trend in inflation was skewed towards services prices, which rose 0.3%, while goods prices fell 0.1%, marking the fourth outright deflation in this category in the past five months. House price growth slowed, rising 0.3%. Energy goods and services fell 2%.
The report comes amid strong bets that the Federal Reserve will cut its benchmark short-term borrowing rate when it meets next week. In September, the central bank cut interest rates by half a percentage point, which was almost unprecedented during an economic expansion.
Policymakers expressed confidence that inflation will return to target while expressing concerns about labor market conditions, although most indicators showed hiring continuing and layoffs low.
Another report Thursday morning reinforced the view that companies are mostly holding on to employees.
According to the Labor Department, 216,000 people filed initial claims for unemployment benefits in the week ended October 26, down 12,000 from the previous period’s upwardly revised level. The total was also lower than the 230,000 forecast.
Despite concerns about inflation, the Commerce Department reported that income and spending remained steady this month.
Personal income rose 0.3%, slightly higher than August’s figure and in line with expectations. Consumer spending increased 0.5%, beating expectations by 0.1 percentage point. The personal savings rate fell to 4.6%, the lowest this year.
In another data point on Thursday, the Bureau of Labor Statistics reported that the employment cost index increased 0.8% in the third quarter, 0.1 percentage point lower than expected. On a 12-month basis, the index measuring wages, salaries and benefits rose 3.9%, while the consumer price index rose 2.4%.
