The Federal Reserve's preferred measure of inflation edged higher in September, providing further evidence that a solid job market and an outperforming economy could be adding to renewed price pressures into the final months of the year.
The Bureau of Economic Analysis' PCE Price Index report Thursday showed core prices rose at an annual rate of 2.7% last month, matching August's reading and coming in just ahead of Wall Street's 2.6% forecast.
Core pressures, which strip away volatile food and energy prices, were up 0.3% on the month, compared with August's 0.2% gain and Wall Street's consensus estimate of 0.3%.
Markets focus on the core PCE inflation reading, which the Fed considers a more accurate representation of overall price pressures, as it incorporates changes in consumer spending patterns.
The BEA's headline PCE inflation index eased to an annual rate of 2.1%, matching Wall Street's estimate and down from the 2.2% pace recorded in August. Prices were up 0.2% on the month, the BEA said, following a 0.1% reading in August.
The BEA also noted that personal incomes for September rose 0.3%, matching the revised 0.3% pace in August, reflecting some firmness in the labor market. Spending accelerated 0.5% compared with the 0.2% gain over the previous month.
"Even though Thursday’s core PCE moved only slightly higher, we believe this is the first in a series of months and quarters where we see an increase in inflation," said Michael Landsberg, chief investment officer at Landsberg Bennett Private Wealth Management.
"Investors should be prepared for a re-acceleration of inflation in late 2024 and early 2025," he added. "Elevated commodity prices, an increase in shipping costs in China, and rising wages will likely soon make their way through the inflation data over the coming months."
U.S. stocks extended declines in early Thursday trading following the data release, with the S&P 500 falling 77 points, or 1.3% and the Dow falling 295 points. The tech-focused Nasdaq was last marked 375 points, or 2.02% lower on the session.
Benchmark 10-year note yields were 2 basis points higher at 4.304% following the data release, while 2-year notes were pegged at 4.185%.
The U.S. dollar index, which tracks the greenback against a basket of six global currencies, was marked 0.1% higher at 104.096.
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Earlier this month, the Commerce Department's Consumer Price Index inflation report showed headline pressures fell to 2.4% in September, the lowest since February 2021. But the department noted that core inflation quickened for the first time in more than a year and a half to 3.3%.
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Since then, weekly jobless claims data have shown notable resilience, while ADP's National Employment report indicated a stronger-than-expected 233,000 new hires in the private sector.
That suggests a firmer-than-expected labor market could support an already outperforming economy into the final months of the year, following Commerce Department data on Wednesday that pegged third-quarter growth at 2.8%.
The CME Group's FedWatch, meanwhile, suggests a 96.1% chance of a quarter-point rate cut from the Federal Reserve next week in Washington, with the odds of a follow-on move in December pegged at 70%.
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