Core PCE Inflation Hits 0.3% in October; Annual Rate Climbs to 2.8%, Led by Services

Inflation Holds Steady: What Does PCE Tell Us?

The Personal Consumption Expenditures (PCE) price index rose 0.2% in October 2024, maintaining September’s pace. Core PCE, which strips out food and energy costs, increased by 0.3%, in line with expectations. On an annual basis, headline PCE inflation climbed to 2.3% from 2.1%, while Core PCE edged up to 2.8%. Goods prices dropped 1% year-over-year, dragged down by a 5.9% decline in energy prices, while services surged 3.9%, driven by healthcare and housing costs.

These figures suggest inflation remains moderate but sticky, with service-sector price increases highlighting continued pressure in essential categories.

How Did Consumers Spend in October?

Consumer spending rose 0.4% in October, reflecting a $72.3 billion increase in outlays. The bulk of this growth came from services, particularly in healthcare and housing, while goods spending dipped slightly, weighed down by reduced gasoline purchases. Adjusted for inflation, real PCE inched up just 0.1%, showing limited improvement in consumers’ purchasing power.

Despite the slowdown in spending growth compared to September’s 0.6%, the steady rise signals resilience among consumers even amid elevated prices.

Income Surges, But Are Americans Saving Enough?

Personal income posted a robust 0.6% monthly gain in October, doubling September’s rate and outpacing forecasts. This increase, driven by higher wages and transfer payments, amounted to a $147.4 billion boost. Disposable personal income (DPI), which accounts for taxes, rose an even stronger 0.7%.

However, the savings rate declined to 4.4% from 4.8% in September, as Americans drew more from their income to fund spending. The drop in savings highlights persistent pressure on household budgets despite nominal income gains.

What Does This Mean for Traders?

The PCE report underscores a mixed picture. Moderate inflation may ease market concerns about further Federal Reserve rate hikes, but the uptick in Core PCE inflation and persistently high service prices could keep policymakers cautious. Meanwhile, strong income growth and steady spending provide a supportive backdrop for economic activity.

Short-Term Market Forecast

Traders should anticipate a neutral-to-slightly bullish outlook for equities, driven by resilient consumer spending and income gains. Bond markets may hold steady as inflation remains contained, though sticky service-sector costs could temper optimism. All eyes remain on upcoming data and Fed commentary to gauge future policy direction.