US inflation heats up in September; consumer spending rises

US inflation accelerated in September as consumers paid more for gasoline and other goods, supporting economists' expectations of an interest rate increase from the Federal Reserve in December.

The Personal Consumption Expenditures Price Index climbed 0.5 percent last month after an unrevised 0.3 percent rise in August, the Commerce Department's Bureau of Economic Analysis said on Thursday. The increase was in line with economists' expectations. In the 12 months through September, PCE inflation advanced 3.6 percent after an unrevised 3.4 percent rise in August.

The data was included in the government's advance gross domestic product report for the third quarter, which showed the economy growing at a 3.4 percent annualized rate during that period.

Excluding the volatile food and energy components, the PCE Price Index rose 0.3 percent over the month after an upwardly revised 0.3 percent gain in August. The so-called core PCE inflation was previously estimated to have climbed 0.2 percent in August.

Core PCE inflation increased 3.1 percent year-on-year in September after an unrevised 3.0 percent rise in August.

The US central bank tracks the PCE price measures for its 2 percent inflation target. The Fed on Wednesday left its benchmark interest rate in the current 3.75 percent–4.00 percent range while acknowledging that inflation "remains elevated."

Fed Chairman Kevin Warsh told reporters that "energy and related prices have moved higher again in recent weeks, and our job is to ensure that relative price changes in some sectors do not broaden out across the economy, and that inflation expectations remain as they are anchored."

Financial markets were pricing in a roughly 84.6 percent chance of a rate hike in December, CME's FedWatch Tool showed.

Higher prices inflated consumer spending numbers in September. Consumer spending, which accounts for more than two-thirds of economic activity, rose 0.5 percent last month after an unrevised 0.9 percent increase in August, the BEA said.

When adjusted for inflation, consumer spending was unchanged last month, heading into the fourth quarter on a weaker growth trajectory. Spending increased at a 3.8 percent rate in the July–September quarter.

Reuters

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