A key measure of United States inflation slowed in September, coming in just below expectations and offering the Federal Reserve further evidence that underlying price pressures are easing as policymakers prepare to meet next week.
The data, released several weeks late due to the government shutdown, was widely interpreted by investors as a signal that central bank policymakers have room to lower interest rates.
The personal consumption expenditures price index, which according to the Bureau of Economic Analysis (BEA) is "known for capturing inflation (or deflation) across a wide range of consumer expenses and reflecting changes in consumer behaviour”, is the Fed’s preferred inflation gauge.
According to the BEA, the core measure, which strips out volatile food and energy components, rose 0.2% over the month.
Its annual rate eased to 2.8%, down from 2.9% in August and slightly below the expected 2.9%.
Headline PCE also increased 0.3% in September, leaving the annual inflation rate at 2.8%. While largely in line with forecasts, the annual figure edged 0.1 percentage point higher compared with the previous month.
Goods prices climbed 0.5% in the month as President Donald Trump’s tariffs continued to filter through the economy.
Services prices were far steadier, rising just 0.2%. Food costs increased 0.4%, while energy jumped 1.7%. The personal savings rate, meanwhile, held unchanged at 4.7%.
With the release delayed by the shutdown, which had halted data collection and economic reporting, markets received a compressed set of economic updates.
Alongside the inflation figures, the report showed personal income rising 0.4% in September, beating expectations, while consumer spending rose 0.3%, marginally below forecasts.
Equity markets strengthened following the data, with traders raising their expectations of a quarter-point rate cut when the Fed announces its decision on Wednesday.
According to the CME Group FedWatch tool, the probability of a cut held at 87.2% after the report.
Although backward-looking, the inflation update provides the final price reading before the Federal Open Market Committee meets.
Policymakers remain divided: one group advocates further cuts to prevent deterioration in the labour market, while another argues inflation risks still warrant keeping policy tight.
Recent mixed labour indicators have added to the debate. Some private sector data points to rising layoffs and slowing hiring, though official figures showed a decline in initial jobless claims last week.
Elsewhere on Friday, the University of Michigan’s consumer sentiment index rose to 53.3 in early December, up 4.5% from November and above expectations.
Inflation expectations also eased, with the one-year outlook falling to 4.1% and the five-year measure at 3.2%, both at their lowest levels since January.
According to survey director Joanne Hsu: “This month’s increase was concentrated primarily among younger consumers. Overall, while views of current conditions were little changed, expectations improved, led by a 13% rise in expected personal finances, with improvements visible across age, income, education, and political affiliation.
"Still, December’s reading on expected personal finances is nearly 12% below the beginning of the year. Similarly, labour market expectations improved a touch but remained relatively dismal.
"Consumers see modest improvements from November on a few dimensions, but the overall tenor of views is broadly somber, as consumers continue to cite the burden of high prices.”
