Despite the increase in prices, consumer spending remained robust, surging by 0.7%, which surpassed the forecast of 0.5%. Personal income also saw an increase of 0.3%, slightly below the estimated figure.
When including volatile food and energy prices, the PCE index rose by 0.4%. On a year-over-year basis, core PCE increased by 3.7%, down slightly from August’s figure, while headline PCE rose by 3.4%, matching the prior month. The Federal Reserve places more emphasis on core inflation, as it offers a better long-term view of price trends. Although core PCE had reached around 5.6% early in 2022, it has been trending downward since then, though it remains significantly above the Fed’s 2% annual target. The Fed prefers the PCE as its inflation measure because it accounts for changes in consumer behavior, such as opting for lower-priced items as prices rise.
The financial markets reacted with relative indifference to the report, with stock market futures showing a slight increase and Treasury yields exhibiting mixed movements across the yield curve. Analysts believe that the Fed is unlikely to alter its view on inflation, as it expects inflation to slow in the coming months as demand moderates.
This report represents the final inflation data the Fed will consider before its two-day policy meeting scheduled for the following week. According to the CME Group, traders are pricing in a nearly 100% chance that the central bank will not announce a rate hike at the conclusion of the meeting.