US PCE Inflation Rises To 3.6% As Real Household Income Falls

US inflation, measured by the personal consumption expenditures (PCE) price index, rose to 3.6% in September, while the monthly measure excluding food and energy held at 0.3% against a revised August figure, according to the Bureau of Economic Analysis (BEA)’s release on 29th October. The figures were followed by the European Central Bank’s decision to hold rates, putting two monetary policy signals into the same trading session.

The BEA’s original August release had put monthly core inflation at 0.2%. Its new table puts August at 0.3%, matching September. Comparing September with the original August figure would therefore show an acceleration that disappears when both months are taken from the latest release.

Higher Headline Inflation, Flat Monthly Core

The broader PCE index, which measures prices paid for consumer goods and services, rose 0.5% during September, compared with 0.3% in August. Annual core inflation, excluding food and energy, reached 3.1%, against 3.0% in the earlier August release. A flat monthly core reading consequently does not mean inflation has returned to the Federal Reserve’s target.

Nominal consumption rose 0.5% in September, but spending after inflation increased by less than 0.1%. Real disposable income fell 0.3%.

The Fed Had Already Held Rates

The Federal Reserve had kept its target range at 3.75% to 4% a day earlier. Its 28th October policy statement described inflation as elevated and said further information would help determine the appropriate stance. Lisa Cook and Beth Hammack dissented because they preferred a quarter percentage point increase. The September inflation release followed that policy decision by a day.

Research on Bitcoin (BTC) also complicates a simple inflation trading rule. A February 2023 New York Fed staff report, by Gianluca Benigno and Carlo Rosa, found no significant response to monetary and macroeconomic news in its intraday study. That historical result is a caution against treating a higher inflation reading as an automatic crypto trading signal.

The ECB kept its deposit facility rate unchanged at 2.50% on 29th October. This is the interest paid to banks on money deposited overnight with the central bank. Its press release identified continued energy price increases as risks to inflation and growth. The bank said financing conditions had tightened since its last meeting and reiterated that it was not committing to a particular rate path.