Core PCE Price Index Shows Inflation Not Growing

Inflation is not building based on the Fed's favorite reading, the core PCE price index which inched a lower-than-expected 0.1 percent higher in September with the year-on-year rate steady and flat at only plus 1.3 percent. These results will not lift the odds for a December hike at the next FOMC.

Income and spending data also came in below expectations, at plus 0.1 percent each vs expectations for plus 0.2 percent each. Income got no boost from wages & salaries in September which were unchanged following, however, strong gains of 0.5 percent in the two prior months that underscore this morning's employment cost index which shows pressure in the third quarter. Spending in September was pulled down by a 1.2 percent plunge in nondurable goods that likely reflects the low price of fuel. Spending on durable goods, driven by vehicles, rose a strong 0.8 percent with spending on services up a solid 0.4 percent.

Other details include a 0.1 percent decline for the total PCE price index, again an effect likely based on fuel. Here the year-on-year rate is barely over zero at plus 0.2 percent. The savings rate continues to edge higher, up 1 tenth to 4.8 percent in a gain that hints at strength for future consumer spending.

Third-quarter consumer activity slowed in September, pointing to lack of momentum for October consumer data. Still, the consumer is in charge in the U.S. economy and, given low unemployment, the outlooks for holiday spending and fourth-quarter acceleration are favorable.

Recent History Of This Indicator:
The core PCE price index is the last major hurdle before the October FOMC and not much pressure is expected with the Econoday consensus at plus 0.2 percent, a monthly gain that does not point to a spike for the year-on-year rate which was far below the Fed's 2 percent target at only plus 1.3 percent in August. Personal income and personal spending have been running at respectable rates of growth but are expected to slow to 0.2 percent gains.