The Federal Reserve's preferred measure of inflation edged higher in October, data indicated Wednesday, thanks in part to an ongoing boom in consumer spending that is challenging the central bank's effort to tame price pressures.
The Bureau of Economic Analysis' PCE Price Index report showed core prices rose at an annual rate of 2.8% last month, just ahead of the September reading of 2.7% and matching Wall Street's 2.8% forecast.
Core pressures, which strip away volatile food and energy prices, were up 0.3% on the month, compared with September's 0.3% 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 sped to an annual rate of 2.3%, matching Wall Street's estimate and coming in modestly higher than the 2.1% pace recorded in September. Prices were up 0.3% on the month, the BEA said, following a 0.2% reading in September.
The BEA also noted that personal incomes for September rose 0.3%, matching the revised 0.3% pace in August, reflecting the stable labor market. Spending accelerated 0.4% compared with the upwardly revised 0.6% gain over September.
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"With the economic landscape underpinned by a resilient labor market, and solid consumer spending, the Fed remains concerned about lower wage earners still struggling with higher interest rates, and small businesses coping with higher prices and bank loans," said Quincy Krosby, chief global strategist at LPL Financial in Charlotte.
"The last mile towards price stability has been stymied by still "sticky" inflation and bumps along road," she added.
U.S. stocks moved lower following the data release, with the S&P 500 falling 25 points, or 0.41% and the tech-focused Nasdaq giving back 185 points, or 0.97%. The Dow was last marked 40 points higher.
Benchmark 10-year note yields marked 2 basis points higher at 4.271% following the data release, while 2-year notes were pegged 2 basis points higher at 4.231%.
The U.S. dollar index, which tracks the greenback against a basket of six global currencies, was marked 0.86% lower on the session at 106.091.
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The CME Group's FedWatch, meanwhile, suggests a 70% chance of a quarter point rate cut from the Federal Reserve next month in Washington, with the odds of a follow-on move in January pegged at just 15%.
"We have been worried inflation is stickier than many thought. We have finally seen Atlanta Fed sticky CPI dip below 4.0% to 3.9%. But inflation expectations in the University of Michigan of 2.6% for one-year and a higher than expected 3.2% for 5-10 years confirms our view," said Nancy Tengler, chief investment officer at Laffer Tengler Investments.
"Will this cause the Fed to skip December? We think it should," she added. "The economy is strong (though nominal GDP has definitely slowed) as inflation has declined but real GDP is still hovering above 2.5% which is certainly decent."
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