In September 2024, the US core Personal Consumption Expenditures (PCE) price index—a key inflation measure closely watched by the Federal Reserve—increased by 0.3% from the previous month. This represents the highest monthly rise in five months and aligns with market forecasts, suggesting sustained inflationary pressure. The core PCE index excludes volatile items like food and energy, providing a clearer view of underlying inflation trends.

Service Prices Drive Monthly Inflation Increase

A closer look at September’s data reveals that service prices rose by 0.3%, reflecting continued demand and costs in sectors like healthcare and housing. In contrast, goods prices dipped by 0.1%, which helped temper the overall rise in inflation. This divergence between service and goods prices highlights how different parts of the economy are responding to current inflation dynamics and may influence the Federal Reserve’s future rate decisions.

Annual Core PCE Rate Remains Steady but Exceeds Forecasts

On a year-over-year basis, core PCE prices rose 2.7%, the same rate as in August. Although unchanged, this annual increase was slightly above market expectations of 2.6%, suggesting that inflation may be proving more persistent than initially expected. Such trends indicate that underlying inflation pressures remain, potentially prompting additional scrutiny from the Fed as it assesses the need for any policy adjustments.

What Rising Core PCE Means for the Federal Reserve’s Strategy

The steady climb in core PCE underscores a continued challenge for the Federal Reserve in balancing economic growth with inflation control. This indicator’s monthly and annual movements provide insights into the Fed’s upcoming policy stance, particularly as it works toward its inflation target of 2%. Market participants and policymakers alike will be watching the core PCE closely in the coming months to gauge how persistent these inflationary pressures remain.