Consumer Price Increases Slow, Matching Closer to Fed's Target

Commerce Department data released on Friday highlights a significant slowdown in consumer price increases as well as a deceleration in consumer spending. It also points to a possible halt on further rate hikes by the Fed.

The core Personal Consumption Expenditures (PCE) index, which omits gas and food prices and is a primary inflation metric for the Federal Reserve, recorded a 3.9% rise for the year leading up to August. This marks the smallest yearly surge in the past two years, aligning closer to the Fed's 2% inflation goal.

For the month, the core PCE witnessed a growth of 0.1%. Including the fluctuating energy and food sectors, the overall PCE index climbed 3.5% year-on-year and 0.4% from July. Though this is a slight increase from July's 3.3% annual and 0.2% monthly rates, it was largely anticipated due to the surge in gas prices.

Bill Bodnar, chief revenue officer for Tabrasa, said this is the type of number, coupled with pending home sales dipping 7.1% in August, meaning the Federal Reserve's Open Market Committee won't hike rates further in November. 

"I think the Fed has to sit on their hands," Bodnar said, adding these are numbers for August. "Can you imagine how bad September will be?"

"The numbers were so bad in August, inflation went higher, rates went higher, energy went higher, September's numbers will get bad print," Bodnar said. 

He said the Fed could use a potential federal government shutdown and the autoworker union strike as a reason for not raising rates, but those are just distractions. 

"They can't because the economy is slowing down," Bodnar said.