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Inflation slowed in October, closely tracked gauge by the Fed suggests

A measure of inflation that is closely monitored by the Federal Reserve but remained at an elevated level in October, reinforcing the Fed’s intention to raise interest rates to cool the economy and slow the acceleration of prices. is likely to.

Thursday’s report from the Commerce Department showed that prices rose 6% in October from a year earlier. Growth in personal consumption expenditure was the slowest since November 2021, and down from the 6.3% rate in September. Excluding volatile food and energy prices, so-called core inflation was 5% over the past 12 months, down from 5.2% in September.

The report also showed that consumers spent more in October even after adjusting for inflation, indicating their continued willingness to continue spending despite higher prices. Spending rose 0.8% from September to October, or 0.5% after accounting for price increases. At the same time, after-tax income, adjusted for inflation, rose 0.4%.

However, many Americans dip into their savings To keep up with rising prices. The savings rate fell to 2.3% in October, the lowest level since 2005.

“Consumer spending held up in October, but the outlook for holiday spending remains low with savings rates at a record low,” Bill Adams, chief economist at Comerica Bank, said in a research note.

Faced with the worst inflation since the early 1980s, the Fed has raised its benchmark rate That’s six times since March, and its last four increases have been more than three-quarters of a point. The central bank is hoping to engineer the difficult task of bringing inflation down to its 2% annual target without creating a recession in the process.

In recent months, inflation has eased from the four-decade high it reached earlier this year. And most economists expect the Fed’s aggressive tightening to lower prices further.

“We expect to see a lot more good news on inflation in the coming months,” Paul Ashworth, chief North America economist at Capital Economics, wrote in a research note.

Possible slowdown of Fed hike

Fed Chair Jerome Powell said in a speech on Wednesday that the central bank could slow its rate of growth half a point increase when it meets in the next two weeks – a message that sent excitement through financial markets. Yet at the same time, Powell made clear that policymakers intend to keep their key rate – which affects many consumer and business loans – at a high level for a long time.

The Fed’s series of aggressive rate hikes have made the cost of borrowing in the economy more expensive. The housing market, in particular, has been hit by a doubling of mortgage rates from a year ago: Sales of pre-occupied homes have fallen for nine months in a row. Many economists expect the United States to slide into recession next year as the effects of those expensive lending rates take root.

signs of resilient economy

Yet in the meantime, the overall economy is showing signs of surprising stability. On Wednesday, the government forecast that the economy had grown solidly 2.9% annual rate From July to September. The job market, the most important gauge of economic health, remains strong. Employers have added an average of 407,000 jobs a month so far this year, and unemployment remains near a half-century low.

The Fed is believed to monitor the inflation gauge that was released on Thursday, called the Personal Consumption Expenditure Price Index, even more closely than the government’s better known Consumer Price Index. Government has told that CPI October rose 7.7% That was down from June’s 9.1% year-on-year increase from 12 months earlier, which was the biggest jump in four decades.

The PCE index shows a lower inflation level than the CPI. In part, this is because rents, which have gone up, carry twice as much weight in the CPI as the PCE.

The PCE Price Index also looks for changes in the way people shop when there is a jump in inflation. As a result, it can lead to capture, for example, when consumers switch from expensive national brands to cheaper store brands.

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