Despite robust consumer spending and strong economic growth, the United States grappled with elevated inflation in September, outpacing the Federal Reserve’s target rate. On Friday, the US Commerce Department released its report, revealing that the Personal Consumption Expenditures Price Index (PCE) surged by 0.4% month-on-month in September, mirroring the previous month’s increase. Year-on-year, the rate held steady at 3.4%, surpassing the Fed’s 2% inflation target.
This persistent inflationary pressure has compounded the financial burden on American households, especially in essential areas like rent, food, and fuel. The cost of crucial goods and services has steadily risen since March 2022, coinciding with the Federal Reserve’s decision to raise short-term interest rates from near zero to their current level of approximately 5.4%. The Federal Reserve initiated this action to curb an annual inflation peak of 9.1% witnessed in June of the preceding year.
Despite soaring inflation, the US experienced strong consumer spending and a robust economic performance during the third quarter of this year. The US government reported on Thursday that consumer spending propelled the nation to a remarkable 4.9% year-on-year growth rate in the July-September quarter, marking the most substantial quarterly performance in almost two years. This figure outpaced the previous month’s 0.7% month-on-month increase in consumer spending.
Excluding the volatile food and energy sectors, the “core” inflation rate saw a 0.3% rise from August to September, exceeding the 0.1% uptick recorded in the prior month. However, core inflation eased to 3.7% on a yearly basis, marking the slowest increase since May 2021 and down from 3.8% in August. This aligns with the Federal Reserve’s earlier forecast and suggests a more cautious approach, possibly avoiding further interest rate hikes in the near future.
The Federal Reserve is poised to maintain its key interest rate when it convenes next week. Nevertheless, policymakers remain vigilant, citing ongoing risks associated with rising inflation and stronger economic growth, which could warrant further rate adjustments.
In summary, September’s inflation data underscores the pivotal role of strong consumer spending in driving US economic growth. Nonetheless, the persistence of elevated inflation poses challenges. The Federal Reserve appears inclined to adopt a watch-and-wait approach regarding additional rate increases as it prudently monitors the forthcoming economic developments.
Source: AP News
