US Fed’s favourite inflation measure sped up in October

New York - The US Federal Reserve’s preferred inflation measure sped up in October, a development that is likely to keep the US central bank wary as it contemplates the path ahead for interest rates.

The personal consumption expenditures index climbed 2.3 per cent from a year earlier, quicker than 2.1 per cent in September, the Commerce Department reported on Nov 27.

After stripping out volatile food and fuel costs to get a better sense of the underlying trend in prices, a “core” index climbed 2.8 per cent from a year earlier. That was up from 2.7 per cent previously.

And looking at how much prices climbed over just the past month, the overall index rose 0.2 per cent from September, and the core index increased 0.3 per cent. Both changes were in line with their previous readings and with economist expectations. Policymakers sometimes look at monthly price changes to get an up-to-date sense of how inflation is evolving.

The upshot from the report is that inflation is proving sticky after months of steady progress. Price increases remain much cooler than they were at their peak in 2022, which topped out at about 7 per cent for the overall index. But they remain slightly faster than the 2 per cent pace that the Fed targets.

That is preventing officials from declaring victory over inflation, although policymakers still expect price increases to continue to cool toward their goal.

The recent lack of progress on inflation is leaving investors wondering whether the Fed will be able to cut interest rates again in December, as it had previously forecast, and how much it might cut rates in 2025.

Officials had previously expected to lower rates to 3.4 per cent by the end of 2025, from about 4.6 per cent now, but analysts and investors increasingly expect policymakers to revise their forecasts following their December meeting, predicting fewer rate cuts in the months to come.

So far, Fed officials have continued to predict that inflation will eventually come down, even if the process is likely to be bumpy. But those forecasts now confront a major wild card: President-elect Donald Trump’s promise to sharply increase tariffs on US trading partners.

While it is hard to say precisely how tariffs will feed into inflation – that depends on how trading partners react and how currencies adjust in response to the policies, among other things – economists widely think that they could push up prices. NYTIMES