The government said today that an inflation gauge closely watched by the Federal Reserve has dropped to near pre-pandemic levels, according to the Associated Press.
The Commerce Department reported that prices rose just 2.1% in September from 12 months earlier, down from a 2.3% year-over-year rise in August. That is barely above the Fed’s 2% inflation target and is in line with readings in 2018, well before prices began surging after the COVID-19 pandemic recession.
On a monthly basis, prices inched up 0.2% from August to September, up slightly from a 0.1% increase from July to August.
The Fed tends to favor the inflation gauge that the government issued today — the personal consumption expenditures (PCE) price index — over the better-known consumer price index (CPI). The PCE index tries to account for changes in how people shop when inflation jumps. It can capture, for example, when consumers switch from pricier national brands to cheaper store brands.
In general, the PCE index tends to show a lower inflation rate than CPI. In part, that’s because rents, which have been high, carry double the weight in the CPI that they do in the index released Friday.
The upbeat economic data has sparked some speculation that the Fed might decide to skip a rate reduction in December or cut rates more slowly next year.
