A new batch of inflation data released on Friday indicated that while prices rose uncomfortably in September, the slowdown in wage growth may see some relief. It’s an encouraging development for the Federal Reserve, which is struggling to contain inflation, which is at a 40-year high.
The Personal Consumption Expenditure Index, which measures the prices consumers pay for goods and services, rose 0.3% from August to September, but was unchanged at 6.2% year-on-year, according to the latest report from the Bureau of Economic Analysis.
Core PCE, which strips out volatile food and energy prices and is the central bank’s preferred measure of inflation, rose 5.1% on a year-over-year basis, higher than August’s rate of 4.9%, but below Refinitiv’s consensus estimate of 5.2%.
From August to September, the key index rose 0.5%, matching estimates. Growth slowed to 0.5% from 0.6% in the previous month.
Separately, the Bureau of Labor Statistics released its latest employment cost index, which showed a slowdown in wage and salary growth in quarterly labor costs. The central bank is closely watching the ECI report to monitor the extent to which skyrocketing inflation is pushing up wages — and fueling inflation.
“These data confirm that the Federal Reserve will need to do more to curb demand, lower inflation and keep policymakers on track to raise the federal funds rate by another 75 basis points at next week’s FOMC meeting,” said Gregory Dago, senior economist at EY Parthenon. , said in a statement.
But some basic metrics Mark Jandy, chief economist at Moody’s Analytics, said next week’s rate hike — which is expected to be the fourth-consecutive 75 basis-point hike — could be the last, indicating a recession is on the horizon.
“There’s a lot of moving parts, a lot of assumptions, but mostly I think we’re at the very worst of inflation and it should come back within firing distance of the Fed. [2%] The target is spring 2024,” he said.
Consumers have been struggling for months with prices stuck firmly at levels not seen since the 1980s. Despite the central bank’s continued jumbo rate hikes in an attempt to control inflation, Latest Consumer Price Index — which measures the price of everything from eggs to plane tickets — showed price increases continued to rise and inflation spread from goods to the services sector in September.
The latest PCE report shows Americans continue to spend beyond their means – consumer spending rose 0.6% and income rose 0.4% in the August-to-September period, while savings levels fell.
Even after accounting for inflation, expenses outstrip income.
“Monetary policy works with resilience, but at this early stage, high inflation and rising prices have more or less dampened consumer spending,” Wells Fargo economists Tim Quinlan and Shannon Seery said in a note Friday. .
However, consumers are not necessarily optimistic about the economy and its future prospects.
The University of Michigan’s consumer sentiment index for October was 59.9, according to updated survey data released Friday. This is only 10 index points from the all-time high reached in June.
“This month, purchasing conditions for durable goods increased by 23% due to price cuts and supply constraints; However, business conditions worsened by 19% from year-ago expectations,” said John Hsu, director of research. “These contrasting patterns reflect considerable uncertainty over inflation, policy responses and global developments, and consumer views are consistent with a slowdown in the economy.”
Beyond the consumer sector, the broader economic picture darkens, Dako said.
“Rapidly rising interest rates, persistently rising inflation and heightened global uncertainty are eroding business sentiment and prompting companies to make more cautious hiring and investment decisions.”
And while the housing market is already buckling under the weight Rising mortgage ratesThe full economic impact of the central bank’s policy tightening is yet to be felt, he said.
CNN Business’ Tommy Luhby contributed to this report.