PCE Inflation Remains Stubborn as Housing Continues to Drive the Figure Higher

The Gist

PCE inflation increased by 0.2% MoM in October, a 2.3% YoY rate higher than the 2.1% reported in September. Furthermore, the core PCE index, which excludes food and energy, rose 0.3% MoM and 2.8% YoY, having increased 2.7% in August and September. While both figures were higher than in previous months, they did match economists' expectations.

The Color

The PCE index climbed on the back of higher service prices (+0.4% MoM, +3.9% YoY) as products saw a slight decline (-0.1% MoM, -1.0% YoY). Food prices were <0.1% higher MoM (+1.0% YoY) while energy prices decreased 0.1% MoM (-5.9% YoY). Housing remains elevated with prices 0.4% and 7.9% higher MoM and YoY, respectively.

The Takeaways

October's release and the persistent core PCE figure, the Fed's preferred measure of inflation, continue to spark debate. The Fed aims to bring core PCE down to its 2.0% target, and this uncertainty adds tension ahead of the December 17-18 meeting. According to the CME FedWatch tool, there is a 66% probability of a rate cut during the next Fed meeting versus 72% a month ago. The CME FedWatch tool estimates the likelihood of Federal Reserve policy moves based on market sentiment and fed funds futures pricing.

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