Inflation Gauge Shows Prices Continuing to Cool

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 personal consumption expenditures (PCE) report 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, prices rose 3% in October, below the 3.4% annual rate in September. It was the lowest year-over-year inflation rate in more than 2 1/2 years.

Excluding volatile food and energy costs, increases in so-called core prices also slowed. They rose just 0.2% from September to October, down from a 0.3% increase the previous month. Compared with 12 months ago, core prices rose 3.5%, 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 predicted that 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.

Since March 2022, the central bank has raised its key rate 11 times from near zero to roughly 5.4% in its drive to curb inflation. Most economists think the Fed's next move will be to cut rates, with the first cut possibly occurring as early as late spring.

On Tuesday, Christopher Waller, a key Fed official, suggested that a rate cut is possible by spring if inflation continued to head lower. Waller sounded the most optimistic notes of any Fed official since the central bank launched its streak of rate hikes, and he signaled that the rate increases are likely over.

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. In Thursday’s report, the government said that consumer spending last month rose a modest 0.2%.