A key measure of US inflation eased more than expected in September, offering the Federal Reserve fresh evidence that price pressures are continuing to cool and reinforcing expectations that interest rates may begin to come down in the coming months.
Data released on Friday by the Commerce Department — delayed due to the government shutdown — showed the core personal consumption expenditures price index rose 0.2% in September.
The annual rate stood at 2.8%, 0.1 percentage point lower than the Dow Jones consensus.
The core index, which excludes the volatile food and energy categories, is the Fed’s preferred gauge for assessing underlying inflation trends.
Headline PCE inflation increased 0.3% from the previous month and also came in at 2.8% annually, both in line with expectations.
The latest readings keep inflation moving gradually toward the Fed’s two percent target.
Income and spending rise despite muted sentiment
The report also pointed to steady gains in household finances.
Personal income rose by $94.5 billion, or 0.4%, in September.
Disposable personal income increased by 0.3%, while personal consumption expenditures climbed 0.3%, reflecting a $63 billion increase in services spending and a modest $2.1 billion rise in spending on goods.
Personal outlays, which include consumer spending, interest payments, and transfer payments, rose $70.7 billion in the month.
Americans saved $1.09 trillion, leaving the personal saving rate at 4.7%.
The Bureau of Economic Analysis said the increase in incomes was driven largely by compensation growth and higher receipts on assets.
Consumer expectations show tentative improvement
A separate survey pointed to mixed but improving consumer sentiment.
The University of Michigan’s preliminary December consumer sentiment index rose to 53.3, edging above forecasts and marking a modest improvement of 2.3 from November.
Sentiment gains were concentrated among younger households, according to survey director Joanne Hsu.
She said expectations for personal finances rose 13%, with improvements visible across demographic groups, though the overall mood remains subdued compared with the start of the year.
Consumers’ year-ahead inflation expectations fell to 4.1% from 4.5% in November, the lowest since January.
Long-run expectations also softened to 3.2%.
Despite four consecutive months of declines, expectations remain above pre-pandemic levels, and Hsu noted that uncertainty around inflation continues to be elevated.
Markets rise as traders digest inflation data
US equities advanced as investors welcomed the softer inflation figures and reassessed the likelihood of the Fed cutting rates next year.
The S&P 500 rose 0.5%, setting the index on track for its fourth consecutive day of gains and keeping it within half a percentage point of its recent high.
The Nasdaq Composite also gained 0.5 percent, while the Dow Jones Industrial Average climbed 229 points, or 0.5%.
Friday’s data gives policymakers additional confidence that inflation is moving steadily in the right direction, even as economic growth moderates.
With the Fed emphasising a data-dependent approach, the latest readings will play a crucial role in shaping its upcoming interest rate decision.
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