U.S. inflation unexpectedly cooled in September, seemingly adding another reason for the Federal Reserve to cut interest rates next week.
The U.S. Department of Commerce released a key inflation indicator on Friday showing that the inflation rate in September was lower than expected. This report, delayed due to the government shutdown, could further signal a green light for the Federal Reserve to lower interest rates.
Data showed that the so-called core Personal Consumption Expenditures (PCE) price index, excluding food and energy items, rose 0.2% month-on-month, unchanged from August data and in line with market expectations; the year-on-year growth rate unexpectedly fell to 2.8%, hitting a three-month low, while the market had expected a continuous third month of 2.9%.
Federal Reserve officials use the PCE price index as a primary policy tool for measuring inflation. Although officials will also consider overall and core data, they generally believe core data is a better indicator for measuring long-term inflation trends.
This report was delayed by several weeks due to the government shutdown, during which all data collection and economic reporting were suspended. Regarding the next PCE data, the Bureau of Economic Analysis stated that the release date for the next data has not yet been rescheduled.
Consumer pullback indicates that before the longest government shutdown in history began on October 1, the main growth engine of the U.S. economy was already slowing. Although more recent data shows that, as shoppers seek discounts, “Black Friday” sales are performing well, consumers are increasingly anxious about the job market, with spending mainly driven by wealthier households.
Another report released on Friday showed that consumer confidence rose for the first time in five months in early December. The rise in the University of Michigan index reflects that, with improved inflation expectations, people are more optimistic about their personal financial prospects.
