The pace of price increases accelerated in September, with inflation well above the Fed’s target, while economic growth in the third quarter was stronger than expected, according to a Commerce Department report on Thursday.
The personal consumption expenditure price index rose by a seasonally adjusted 0.5% in the month, bringing the annual inflation rate to 3.6%. The monthly rate of increase was in line with the Dow Jones Consensus, but the annual rate was 0.1 percentage point lower.
Core PCE excluding food and energy recorded readings of 0.3% and 3.1%, respectively, in line with the consensus. The Fed watches both measures closely, but officials generally view core measures as more indicative of long-term inflation trends.
Inflation remains above the Fed’s 2% target, while the Commerce Department reported strong third-quarter gross domestic product.
GDP grew at a seasonally adjusted annual rate of 3.4%, beating expectations of 3.1% and significantly higher than the 2.2% in the second quarter.
In addition, personal consumption was strong, increasing by 0.5%, slightly lower than the expected 0.6% increase, while personal income increased by 0.2%, compared to the expected 0.3% increase.
The report came a day after the Federal Reserve voted to keep interest rates unchanged at 3.75% to 4%. Despite the rise in inflation, central bank officials insist they have leeway to assess upcoming data before deciding on their next action.
“The period before us is rich with information. There’s a lot going on in the world, and my colleagues and I want to pay attention to that,” said Federal Reserve Chairman Kevin Warsh.
But a trove of data from Thursday suggests the Fed may have more work to do.
A Labor Department report also released Thursday showed layoffs remained low. New jobless claims for the week ending Oct. 24 fell slightly to a seasonally adjusted 194,000, below the 200,000 expected and close to levels not seen since the late 1960s.
Following the announcement, stock market futures turned negative and US Treasury yields also fell.
Economic growth has been driven by increased investment in building artificial intelligence and increased consumer and government spending.
Personal consumption increased by 3.8% in the third quarter, the same pace as the previous quarter. Total private domestic investment increased by 19.4%, led by a 20.9% increase in capital expenditures and an 8.4% increase in intellectual property products.
Real sales to domestic private buyers, which Fed officials use as an indicator of underlying demand, rose 4.9% compared with a 4.6% increase in the second quarter.
There was some good inflation news during this period. On a quarterly basis, PCE prices rose 2.1% headline and 2.5% core, down from 5% and 3.3%, respectively, in the second quarter.
September’s price rise was mainly due to soaring energy costs, and economists are concerned that it could spill over into other parts of the economy. Gasoline and other energy products increased 9.2% over the month, and energy goods and services overall increased 5.4%.
At the same time, prices for services excluding energy and housing increased by 0.4%, and housing costs rose by 0.3%.
