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US inflation rises to 3.6% in September, strengthening bets on Fed rate hike in December
US inflation rose to 3.6% in September, above the Fed's 2% target, strengthening market expectations of an interest rate hike in December.
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US inflation rose in September as consumers paid more for gasoline and other goods. The rise strengthened economists' expectations that the Federal Reserve (Fed) could increase interest rates in December.
The Personal Consumption Expenditures (PCE) Price Index, which measures changes in the prices of goods and services, increased by 0.5% in September. It had risen by 0.3% in August. The September increase was in line with economists' expectations, according to the Commerce Department's Bureau of Economic Analysis (BEA), as noted by Reuters.
US inflation rises to 3.6% in September
US PCE inflation rose by 3.6% in the 12 months through September, up from 3.4% in August. This was higher than the Federal Reserve's 2% inflation target.
Deep Dive
Core PCE inflation, which does not include food and energy prices because they can change quickly, rose by 0.3% in September. It also increased by 0.3% in August. The August figure was revised up from the earlier estimate of 0.2%, according to the Bureau of Economic Analysis (BEA).
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Core PCE inflation rose by 3.1% in the 12 months through September, compared with 3.0% in August. This measure is closely watched because it excludes the often-unstable prices of food and energy.
Fed interest rate remains unchanged
The Federal Reserve left its benchmark interest rate unchanged at 3.75%-4.00% on Wednesday. However, the central bank acknowledged that inflation remained high, according to Reuters' report on the Fed's October meeting.
Fed Chairman Kevin Warsh said energy prices and related costs had increased again in recent weeks. He said the central bank needed to ensure that price increases in some sectors did not spread across the wider economy. He also stressed the importance of keeping inflation expectations under control, according to Reuters.
Also read: US Treasury yields fall as markets weigh Fed rate outlook and December rate hike prospects
Fed rate hike chances rise for December
Financial markets were pricing in an 84.6% chance of a Federal Reserve interest rate increase in December, according to CME Group's FedWatch Tool. The higher-than-target inflation rate strengthened expectations of another rate hike.
US economy and consumer spending growth
The inflation figures were included in the government's advance report on gross domestic product (GDP) for the July-September quarter. The report showed that the US economy grew at an annualised rate of 3.4% during the quarter, according to Reuters.
US consumer spending rose by 0.5% in September, following a 0.9% increase in August. Consumer spending accounts for more than two-thirds of US economic activity, making it an important measure of the economy's strength.
The increase in consumer spending partly reflected higher prices paid by households. After adjusting for inflation, consumer spending remained unchanged in September, suggesting that households did not increase the amount they purchased overall, according to Reuters.
Despite the monthly slowdown, consumer spending increased at an annualised rate of 3.8% during the July-September quarter. However, inflation-adjusted spending was flat in September, pointing to weaker momentum as the US economy entered the fourth quarter, according to the BEA.
