A measure of inflation closely watched by the Federal Reserve hit a three-and-half-year low in September, the Commerce Department reported Thursday. The personal consumption expenditures price index rose just 2.1% on a 12-month basis, a decline from the 2.3% rate recorded in August and just a hair above the central bank’s target inflation rate of 2.0%.
A related measure, the core PCE price index, which ignores volatile food and fuel prices to provide a better sense of the underlying trend, told a slightly different story. Core PCE rose 2.7% on an annual basis in September, maintaining the modestly hotter level recorded in July and August. On a monthly basis, core PCE rose 0.3%, a bump up from the 0.2% rate in August.
The report also shows a robust increase in personal spending, which rose 0.5% in September, supported by an 0.3% increase in disposable income.
What the experts are saying: While some analysts said they were concerned about the stickiness of core inflation, most hailed the report as another sign that the economy is healthy and the battle against inflation is all but won.
“Robust spending, increasing income and the re-establishment of price stability amid strong productivity gains are the primary factors shaping the economic narrative,” said Joseph Brusuelas, chief economist at RSM. “American households are well positioned to keep spending at a 3% to 3.5% pace as inflation moves back to 2% and real wages continue to increase.”
Olu Sonola, head of U.S. economic research at Fitch Ratings, offered a similar summary. “The bottom line is that the labor market remains strong, inflation is broadly disinflationary with some bumps along the road, and economic growth is solid,” Sonola said in a research note, per CNN.
Gregory Daco, chief economist at the tax and accounting firm EY, told CNN that the data points to an ideal scenario in which inflation is defeated without the economy falling into a recession. “It’s essentially the soft landing that many of us dreamed of,” he said. “You really have the best of both worlds, with consumer spending growth remaining resilient and inflation moving within striking distance of the Fed’s 2% target.”
