Inflation Rose in September as Expected, Indicating a Strong Economy

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Inflation rose in September, but the increase was lower than expected, indicating an economy that was growing but not overheating. The Labor Department reported today that the Consumer Price Index rose by 0.5% in September, which is exactly what economists had been expecting.

Details on Inflation
According to a carefully watched economic indicator by the Federal Reserve, inflation remained high in September, although mainly in line with forecasts, the Bureau of Economic Analysis announced on Friday.

The study indicated that the core personal consumption expenditures price index rose 0.5% from the previous month and has advanced 5.1% over the previous 12 months. While the yearly growth fell just short of the forecasted 5.2%, the monthly gain was consistent with Dow Jones projections.

Similar to August, PCE inflation increased by 0.3% for the month and 6.2% annually when food and energy are included.

The study is released as the Fed is ready to raise interest rates for the sixth time this year at its policy meeting next week. The Fed has been increasing rates, with hikes totalling 3 percentage points so far, in a bid to battle inflation, which is currently growing at its highest rate in almost 40 years.

Market participants anticipate that the Fed will adopt its fourth consecutive 0.75 percentage point raise at this meeting, but may then decide to decrease the rate of increases going forward.

In addition, the BEA stated that personal income rose 0.4% in September, which was 0.1% more than expected. Personal consumption expenditures, which serve as a measure of spending, climbed by 0.6%, above the 0.4% expectation.

But when inflation was taken into account, spending only increased by 0.3%. After deducting taxes and other expenses, disposable personal income increased by 0.4% for the month but remained unchanged when adjusted for inflation.

For the month, the personal saving rate—which calculates saves as a percentage of disposable income—was 3.1%, down from 3.4% in August.

According to a second report released by the Bureau of Labor Statistics on Friday, employment expenses increased 1.2% during the third quarter, in line with expectations. The employment cost index rose 5% on an annual basis, which is a little slower than the second quarter’s 5.1% growth rate.

With a tight labour market that now has 1.7 positions for every available worker, according to recent BLS statistics, Fed policymakers closely monitor Friday’s data points for indications of where costs are heading.

The PCE price reading is preferred by the Fed above the BLS’s more popular consumer price index. The BEA measure takes into account consumer behaviour, namely the replacement of cheaper items, to identify cost-of-living rises as opposed to simple price changes.

Markets believe that the Fed may slow down the rate of future rate increases. The central bank raising rates by 0.5 percentage points in December has a roughly 60% chance of happening, according to futures pricing Friday morning.

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