Fed’s go-to inflation gauge shows price hikes slowing

With pressures easing, central bank expected to leave key interest rate alone

WASHINGTON — The Federal Reserve’s preferred inflation measure cooled last month, the latest sign that price pressures are waning in the face of high interest rates and moderating economic growth.

Thursday’s report on the personal consumption expenditures price index from the Commerce Department said prices were unchanged from September to October, down from a 0.4% rise the previous month. Compared with a year ago, consumer prices rose 3% in October, below the 3.4% annual rate in September. That was the lowest year-over-year inflation rate in more than 2 ½ years.

Excluding volatile food and energy costs, increases in so-called core prices also slowed. They rose 0.2% from September to October, down from a 0.3% increase the previous month. Core prices rose 3.5% in October from a year earlier, below the 3.7% year-over-year increase in September. Economists closely track core prices, which are thought to provide a good sign of inflation’s likely future path.

With inflation easing, the Fed is expected to keep its key benchmark rate unchanged when it next meets in two weeks. The latest figures also suggest that inflation will fall short of the Fed’s own projected levels for the final three months of 2023.

In September, the Fed’s policymakers had predicted inflation would average 3.3% in the October-December quarter. Prices are now on track to rise by less than that, raising the likelihood that Fed officials will see no need to further raise interest rates.

“They’ve got to be encouraged by this data,” Vincent Reinhart, chief economist at Dreyfus & Mellon and a former Fed economist, said of the central bank’s policymakers. “It is a nice trend down in core inflation. Under the hood, there is a slowing that suggests they’re making progress.”

In the past six months, core inflation has risen at just a 2.5% annual rate, not far above the Fed’s 2% target, and down sharply from a year earlier, when it was 5.1%.

Still, Americans ramped up spending last month, though at a modest pace. Consumer spending increased 0.2% in October, the report showed, a smaller gain than big increases in the spring and summer.

But a moderating pace of spending, slowed by high borrowing costs, should cool the economy and help further ease inflation. On Wednesday, the government reported that American consumers spent enough to help drive the economy to a brisk 5.2% annual pace from July through September. Growth is expected to slow, though, to about a 1.5% pace in the final three months of the year.

Spending fell sharply last month on large factory goods — cars, furniture, appliances — which are often bought on credit. The declines in spending on those items suggests the Fed’s rate increases are discouraging purchases in some areas. This trend could force businesses to keep price increases on hold or even cut prices to support sales.

Americans in general appear to be growing more price-sensitive, which could also limit companies’ ability to raise prices.