PCE Nears 2% Target in September, Hinting at Inflation Goal

The U.S. Personal Consumption Expenditure (PCE) report for September is scheduled to be released on October 31, 2024. In a recent report, Goldman Sachs economists pointed out that they predict a 2.04% increase in this inflation indicator over the next 12 months, rounded to 2%, which is the Federal Reserve's target inflation rate.

The Personal Consumption Expenditure report will provide the latest insights into inflation trends, including the overall and core Personal Consumption Expenditure Price Index, both of which are closely watched by the Federal Reserve when making monetary policy decisions. The Personal Consumption Expenditure report is often described as the Federal Reserve's preferred inflation indicator.

It is worth noting that Goldman Sachs expects the "core" Personal Consumption Expenditure to be 2.6%. The core inflation rate excludes food and energy, which the Federal Reserve considers a better indicator for measuring long-term trends. The PCE annual rate is 2.6%, significantly lower than the 3.3% derived from the CPI report last week.

Based on existing PPI and CPI data, several economists predict that the core PCE will increase by 0.2% in September, possibly rising to 0.3%, following an increase of 0.1% in August. However, the six-month annualized growth rate of core Personal Consumption Expenditure is expected to slow down from 2.4% in August to 2.2%, showing a downward trend. The annualized inflation rate is expected to be 2.6%, lower than 2.7% in August.

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In addition to Goldman Sachs, other major banks have also expressed their views. Barclays economist Pooja Sriram said, "Although the core PCE inflation rate rounded to 0.3% is not ideal for the Federal Reserve, it is not worrying either, as it is the result of a series of benign data. We continue to expect that the core PCE inflation rate will maintain a sequential growth of around 0.2% for the rest of the year."

Last week, CPI and PPI data were released one after another. The PPI data released by the U.S. Department of Labor last Friday was unexpectedly flat, while the September CPI data released on Thursday showed an increase beyond expectations. Some components of the Personal Consumption Expenditure Price Index have strengthened slightly, indicating a higher underlying inflation rate in September.

Paul Ashworth, Chief North American Economist at Capital Economics, said, "We expect a more moderate rate cut next month, of 25 basis points, and we still expect that core price inflation will continue to fall back to the target level by the beginning of next year, but the risk of this view is no longer a one-way downward risk."

The U.S. Bureau of Labor Statistics reported that the overall CPI in the United States rose by 2.4% year-on-year in September, down for the third consecutive month, slightly higher than the market expectation of 2.3%; the U.S. PPI rose by 1.8% year-on-year in September, higher than the market expectation of 1.6%; the month-on-month increase was 0.0%, lower than the market expectation of 0.1%.

Most economists do not believe that the rise in inflation rate is a sign of a resurgence in price pressure. The housing inflation rate cooled significantly in September. However, high prices continue to affect consumers' views on the economy. Another survey by the University of Michigan last Friday showed that the preliminary value of the consumer confidence index in October fell from 70.1 in September to 68.9. Economists had previously expected a preliminary value of 70.8.