The personal consumption expenditures index rose by 0.2% in October, with a year-over-year increase of 2.3%. Personal income increased by 0.06%, leading to a rise in service spending but a fall in goods spending.
Core PCE inflation remained elevated at 2.8%, complicating the Federal Reserve’s policy decisions. The Fed prefers the PCE price index because it includes a broader range of goods and services, and provides a comprehensive picture of consumer spending.
Comparatively, the consumer price index uses a fixed basket of goods and updates its weights less frequently, while the PCE uses a flexible method that adjusts to consumer behavior, making it more accurate and timely. The PCE is also less volatile, is directly included in the gross domestic product and offers a clear picture of inflation trends.
Since September, the Fed has been continuously lowering interest rates, aiming to reach a healthy 2% inflation rate. However, as PCE continues to lean toward 3% rather than the Fed’s 2% target, upcoming policy decisions have become more complex.
Although the markets anxiously expect rate cuts, it’s possible that future rate cuts will be implemented more slowly than expected.In October, personal income increased by 0.06% or $147.4 billion, as an increase in income is often accompanied by consumer spending. However, the report also showed a decrease of $2.3 billion in spending for goods.
The Bureau of Economic Analysis noted the key expenses that led to the rise in expenditures were healthcare, housing, gasoline and fuel spending. The real PCE index, which considers the volume of goods and services consumed and is adjusted for inflation, increased by 0.1% in October.
Food prices increased by less than 0.1%, while energy prices decreased by 0.1%. Real PCE showed that recreational goods and vehicles were the largest contributors to goods spending.
However, core PCE, which excludes food and energy—the most volatile categories—and provides an accurate view of inflation trends, increased 2.8%, indicating continuous inflation growth despite slow price increases.
The PCE’s 0.2% price index increase and the core PCE’s 0.3% increase are in line with economist expectations.
