September PCE Report: Inflation Index Up 2.1%, In Line With Expectations

The September Personal Consumption Expenditures Price Index increased in line with expectations, up 2.1% from year-ago levels.

When volatile food and energy costs are factored out, the Federal Reserve’s preferred measure of inflation increased 2.7% from one year ago, above expectations. Economists had forecast that the core PCE inflation index would rise 2.6%.

The PCE Price Index increased 0.2% from month-ago levels. Excluding food and energy, the index increased 0.3%.

“Core PCE inflation at 0.25% month over month was right in line with what one would expect based on the CPI and PPI data already reported,” says Preston Caldwell, senior US economist at Morningstar. “Core services excluding housing inflation posted at 0.3% month over month, the highest in six months, with healthcare prices increasing by 0.4%.”

September PCE Inflation Report Highlights

• The PCE Price Index rose 0.2% in September, in line with the FactSet consensus forecast and following an increase of 0.1% in August.
• Core PCE rose 0.3% in September, in line with forecasts and following an increase of 0.2% in August.
• The PCE Price Index year over year rose 2.1% in September, in line with forecasts and following an increase of 2.3% in August.
• Core PCE year over year rose 2.7% in September, above forecasts for a 2.6% increase and following an increase of the same amount in August.

“Three-month growth in core PCE prices stands at 2.3% annualized, but it’s at 1.9% excluding housing,” Caldwell notes. “Core PCE inflation is 2.7% on a year-over-year basis, but it’s 2.1% excluding housing. From this vantage point, the housing category alone is responsible for inflation’s deviation above the Fed’s 2% target.”

The inflation data is seen as keeping the door open for continued Federal Reserve rate cuts. “We expect the Fed to proceed with a 25-basis-point cut at next week’s meeting, which is well baked into market expectations,” Caldwell explains. “If core PCE inflation remains below a 2.5% annualized pace in the next couple of months, we’d expect another cut in December. After that, a skip becomes more likely, unless the data shows a more substantial reduction in inflation and/or measures of economic growth.”