Inflation Cooled To 2.1% In September, Lowest Level Since February 2021

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The personal consumption expenditures (PCE) price index, a key measure of US inflation, rose at an annual rate of 2.1% in September, down from 2.2% in August, according to a Commerce Department report. This figure is in line with economists' expectations and is the lowest level since 2021. The Federal Reserve uses the PCE reading as its primary inflation gauge, with a target inflation rate of 2% annually, a level it has not achieved since February 2021. The September headline rate was down 0.2 percentage points from August.

The so-called "core" PCE index, which excludes volatile food and energy costs, rose 2.7% in September, slightly above economists' expectations of 2.6%. The move in inflation was tilted towards services prices, which increased 0.3%, while goods prices decreased 0.1%, marking the fourth outright deflation figure in the past five months for the category. Housing prices eased off their pace, rising 0.3%. Energy goods and services fell 2%.

The report comes as markets anticipate that the Federal Reserve will cut its benchmark short-term borrowing rate when it meets next week. In September, the Fed slashed the rate by a half percentage point, a move virtually unprecedented during an economic expansion. Policymakers have expressed confidence that inflation is heading back to target while at the same time showing concern over the state of the labor market despite most indicators showing that hiring is continuing and layoffs are low.

Despite worries over inflation, the Commerce Department report showed income and spending held up during the month. Personal income increased 0.3%, slightly higher than the August number and in line with expectations. Consumer spending rose 0.5%, topping the outlook by 0.1 percentage points. The personal saving rate moved down to 4.6%, its lowest of the year.


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