Despite the Federal Reserve’s decision not to raise rates yesterday, the latest data from the Bureau of Economic Analysis (BEA) still showed a 0.5% month-to-month increase in inflation as measured by the Personal Consumption Expenditures (PCE) price index, 0.2% higher than the increase in August.
The PCE index has enjoyed a reputation as the Fed’s favored indicator of inflation, and is released monthly by the BEA along with a bevy of related indices and measures. One of those related indices is the “core” PCE price index, which, by excluding food and energy from the data, aims to provide a less volatile long-term indicator of inflation.
The core PCE price index increased 0.3%, also up from 0.2% in August. Even so, both month-to-month price indices fell in line with expectations based on previous months.
The year-to-year PCE price index, which is now 3.6% higher than last September, may reveal greater cause for concern. The core year-to-year PCE price index sits not far behind at 3.1%.
Navy Federal Chief Economist Heather Long said on social media that 3.6% is the highest PCE Inflation has been since May. According to Long, “inflation is back near a 3-year high,” probably “largely due to war in Iran.”
The report comes as home sales continue to hover at historic lows, with existing-home sales on track to come in below 4 million this year (compared to longer-term averages of over 5 million going back to the Great Recession). Mortgage rates are back above 7% as the Iran war and other geopolitical instability have put pressure on prices and rattled the economy.
Long, however, hesitated to make it all about Iran. She identified three trends—a “(b)ig rise in goods prices,” “service sector inflation” and “sideways” housing inflation as indicative of rising core inflation in general.
“Bottom line: America’s inflation problem is bigger than the war in Iran,” Long wrote.
A pending inflation problem could signal another rate hike in December. Chris Osmond, chief investment officer for Fifth Third Wealth Advisors, told Yahoo Finance that yesterday’s hold is likely only a pause in a tightening cycle.
As for other statistics from the report, consumer spending as measured by the PCE recorded a 0.5% or $113.1 billion increase.
The BEA reported that this increase was split between a $35.1 billion uptick in spending on goods and a $78.1 billion uptick of spending on services this month. Of the goods and services counted in the data, gasoline and energy goods experienced the most dramatic increase in spending at $45.7 billion, while motor vehicles and parts clocked in the most dramatic decrease at $14.0 billion.
Current-dollar disposable personal income (DPI), or personal income minus personal current taxes, rounded out the highlighted personal income measures at a 0.2% or $52.7 billion increase. Its inflation-adjusted counterpart, real DPI, clocked in at a -0.3% decrease.
