US inflation accelerated again in September, with the Federal Reserve's preferred price gauge rising faster than the month before, in a report that strengthens expectations of another interest rate increase in December. The Personal Consumption Expenditures (PCE) Price Index climbed 0.5% in September after an unrevised 0.3% rise in August, the Commerce Department's Bureau of Economic Analysis said on Thursday. In the 12 months through September, PCE inflation advanced 3.6%, up from an unrevised 3.4% rise in August — exactly in line with the estimates of economists polled by Reuters.

Source: Reuters

Excluding the volatile food and energy components, the so-called core PCE Price Index rose 0.3% in September, after an upwardly revised 0.3% gain in August — core inflation had previously been estimated at 0.2% for August. Core PCE inflation increased 3.1% year-on-year in September, after an unrevised 3.0% rise in August, Reuters reported.

Source: Reuters

Why this is the inflation number that matters most

The US central bank tracks the PCE price measures for its 2% inflation target, which makes Thursday's release the single most important inflation reading for Federal Reserve policy. At 3.6%, headline inflation is running well above that target and moving in the wrong direction, and Reuters reported that the acceleration — driven by consumers paying more for gasoline and other goods — supports economists' expectations of an interest rate increase from the Federal Reserve in December.

The data landed a day after the Fed left its benchmark interest rate unchanged in the current 3.75%-4.00% range on Wednesday, while acknowledging that inflation “remains elevated.” Financial markets were pricing in a roughly 84.6% chance of a rate hike in December, CME's FedWatch Tool showed.

Source: Reuters

Fed Chairman Kevin Warsh told reporters that “energy and related prices have moved higher again in recent weeks, and our job is to ensure that relative price changes in some sectors do not broaden out across the economy, and that inflation expectations remain as they are anchored.”

Source: Reuters

Shoppers spent more — but took home the same

Higher prices inflated the consumer spending numbers in September. Consumer spending, which accounts for more than two-thirds of US economic activity, rose 0.5% last month after an unrevised 0.9% increase in August, the BEA said. But when adjusted for inflation, consumer spending was unchanged in September — meaning families paid more without buying more — and households headed into the fourth quarter on a weaker growth trajectory. Spending had increased at a 3.8% rate in the July-September quarter.

Source: Reuters

The same government release carried the advance estimate of gross domestic product: the US economy grew at a 3.4% annualised rate in the third quarter, faster than the 3.2% growth economists had expected. A separate Labour Department reading showed jobless claims for the week ended October 24 stood at 194,000, below the 199,000 estimate — a labour market that is cooling only slowly, giving the Fed room to keep its focus on prices.

Source: Reuters

Stock futures pared their declines slightly after the data, without changing the day's negative tone: at 8:32 a.m. ET, Dow e-minis were down 146 points, or 0.28%, S&P 500 e-minis were down 27.5 points, or 0.35%, and Nasdaq 100 e-minis were down 346.5 points, or 1.16%.

Source: Reuters

What it means for diaspora households and truckers

For Punjabi diaspora families across the United States, the squeeze in this report is the everyday one: gasoline and goods cost more, while real — inflation-adjusted — spending power stood still in September. For the large number of Punjabi truckers on US highways, fuel is the biggest running cost of the business, and a Federal Reserve that hikes again in December would keep borrowing expensive across the board — truck loans, mortgages and credit cards alike — well into the new year.