Inflation gauge closely watched by the Fed surges again in September
Economists expected core inflation to increase in September
Chief Investment Officer of Kingsview Wealth Management Scott Martin joined 'Kennedy' to discuss high mortgage rates driving down housing demand.
The Federal Reserve's preferred inflation gauge accelerated again in September, keeping prices elevated near a four-decade high, according to new data released Friday,
The Personal Consumption Expenditures (PCE) index showed that core prices, which strip out the more volatile measurements of food and energy, climbed 0.5% from the previous month and rose 5.1% on an annual basis, according to the Bureau of Labor Statistics.
Those figures are in line with the 0.5% monthly increase and 5.2% annual increase forecast by Refinitiv economists, indicating that inflationary pressures are broadening throughout the economy.
The more encompassing headline figure rose 6.2% on an annual basis after prices rose 0.3% from the previous month, the same as August. That increase came despite a sharp decline in gas prices.
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A customer shops at a supermarket in Millbrae, California, Aug. 10, 2022. (Photo by Li Jianguo/Xinhua via Getty Images / Getty Images)
While the Fed is targeting the PCE headline figure as it tries to wrestle consumer prices back to 2%, Chair Jerome Powell previously told reporters that core data is actually a better indicator of inflation.
"Core inflation is a better predictor of inflation going forward," Powell said. "Headline inflation tends to be volatile."
Both the core and headline numbers point to inflation that is running well above the Fed's preferred 2% target, a troubling sign as the central bank is already hiking interest rates at the fastest pace in decades.
U.S. Federal Reserve Chair Jerome Powell and members of the Federal Reserve will use this week's consumer and producer price index reports to weigh raising interest rates an additional 75 percentage points when the group meets on Sept. 21. (Photo by Liu Jie/Xinhua via Getty Images / Getty Images)
Policymakers have already approved five consecutive rate hikes, including three back-to-back 75 basis point increases, and have shown no signs of slowing down. At their latest meeting in September, Fed officials laid out an aggressive rate-hike trajectory that would put the federal funds target rate well into restrictive territory by the end of the year.
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Despite scorching-hot inflation, the report showed consumers continued to open their wallets in September: Spending rose 0.6%. Data for August was also revised higher to show spending climbed 0.6% instead of the initially reported 0.4%.
Inflation-adjusted spending rose just 0.3%.
Shoppers walk through the milk and cream section of a supermarket in Montebello, California, on Aug. 23, 2022. (Photo by FREDERIC J. BROWN/AFP via Getty Images / Getty Images)
"Consumers remain undaunted by Fed rate hikes, with a healthy increase in spending fueled in part by a healthy increase in wages," said Robert Frick, a corporate economist at the Navy Federal Credit Union. "Given consumers are also dipping into savings more and taking on more debt to fund spending, this trend can’t last forever. But with a strong jobs market bringing more paychecks to more households it can last well into next year."