PCE inflation September 2022:

PCE inflation September 2022:

Halloween candy is sold at a Harris Teeter store on October 17, 2022 in Washington, DC.

Drew Angerer | Getty Images

An economic indicator closely watched by the Federal Reserve showed that inflation remained strong in September, but mostly within expectations, the Bureau of Economic Analysis announced on Friday.

The price index of basic personal consumption increased by 0.5% compared to the previous month and accelerated by 5.1% in the last 12 months, the report shows. Monthly growth was in line with Dow Jones estimates, while annual growth was slightly below the predicted 5.2%.

Including food and energy, PUC inflation rose by 0.3% month-on-month and 6.2% year-on-year, as in August.

The report comes as the Fed is poised to deliver its sixth rate hike of the year at its policy meeting next week. In an effort to combat inflation running at its fastest pace in nearly 40 years, the Fed has raised rates, with increases totaling 3 percentage points so far.

Markets are widely expecting the Fed to deliver its fourth consecutive hike of 0.75 percentage points at the meeting, but it is likely to slow the pace of hikes thereafter.

The BEA also reported that personal income rose 0.4% in September, one-tenth of a percentage point above estimates. Spending, as measured by personal consumption expenditures, rose 0.6%, more than the estimate of 0.4%.

However, when adjusted for inflation, spending rose just 0.3%. Disposable personal income, or what is left after taxes and other charges, rose 0.4% month-on-month, but was unchanged on an inflation-adjusted basis.

The personal savings rate, which measures savings as a share of disposable income, was 3.1% for the month, up from 3.4% in August.

A separate statement on Friday showed that employment costs rose 1.2% in the third quarter, in line with estimates, according to the Bureau of Labor Statistics. On an annual basis, the employment cost index rose 5%, slightly lower than the 5.1% pace in the second quarter.

Fed officials are watching Friday’s data closely to see where spending is headed, especially with a tight labor market at 1.7 jobs for every available worker, according to the latest BLS data.

The Fed prefers the PCE price reading to the more widely followed CPI than the BLS. The BEA measure adjusts for consumer behavior, particularly the substitution of cheaper goods, to account for increases in the cost of living rather than simple price movements.

Markets think the Fed may slow the pace of its rate hikes. Futures prices on Friday morning indicated an almost 60% chance that the central bank will raise rates by 0.5 percentage points in December.

Correction: A separate release on Friday showed that employment costs rose 1.2% in the third quarter, according to the Bureau of Labor Statistics. An earlier version misstated that day.

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