The Federal Reserve’s preferred inflation measure sped up in October, a development that is likely to keep central bankers wary as they contemplate the path ahead for interest rates.
The Personal Consumption Expenditures index climbed 2.3 percent from a year earlier, quicker than 2.1 percent in September.
After stripping out volatile food and fuel costs to get a better sense of the underlying trend in prices, a “core” index climbed 2.8 percent from a year earlier. That was up from 2.7 percent previously.
Looking at how much prices climbed over just the past month, the overall index rose 0.2 percent from September, and the core index increased 0.3 percent. Both changes were in line with their previous readings and with economist expectations. Policymakers sometimes look at monthly price changes to get an up-to-date sense of how inflation is evolving.
The upshot from the report is that inflation is proving sticky after months of steady progress. Price increases remain much cooler than they were at their peak in 2022, which topped out at about 7 percent for the overall index. But they remain slightly faster than the 2 percent pace that the Fed targets.
That is preventing officials from declaring victory over inflation, although policymakers still expect price increases to continue to cool toward their goal.
Officials “remained confident that inflation was moving sustainably toward 2 percent, although a couple noted the possibility that the process could take longer than previously expected,” according to minutes from the Fed’s November meeting, released this week.
But there’s a big wild card for inflation forecasts: President-elect Donald J. Trump’s promise to sharply increase tariffs on major U.S. trading partners.
Mr. Trump pledged both across-the-board tariffs and levies of 60 percent or more on China while he was campaigning. On Monday, he posted on Truth Social that on his first day in office he would impose a 25 percent tariff on all goods from Canada and Mexico and an extra 10 percent tariff on products from China.
While it is hard to say precisely how tariffs will feed into inflation — that depends on how trading partners react and how currencies adjust in response to the policies, among other things — economists widely think that they could push up prices.
For instance, economists at Deutsche Bank wrote in an analysis on Tuesday that tariffs on Canada and Mexico of the magnitude Mr. Trump suggested this week would most likely lift core P.C.E. inflation above 3 percent in 2025.
And other economists have predicted that Mr. Trump’s tariff policies could be the roadblock preventing the Fed from returning inflation to 2 percent next year.
“While the pieces are in place for inflation to close most of the remaining gap in 2025, we expect an escalation in tariff policy to delay the return,” Ronnie Walker at Goldman Sachs wrote in a recent research note.
Goldman’s economists expect core inflation to return to 2.1 percent by the end of next year, excluding tariffs. But with higher tariffs on China and cars, it could end up closer to 2.4 percent, they estimated.
For officials at the Fed, the outlook for tariffs and other actions by the Trump administration remains too uncertain for policymakers to react immediately.
Jerome H. Powell, the Fed chair, said during a recent event in Dallas that “it’s too early to reach judgments” about how Mr. Trump’s potential policies would affect the economy.
The post The Fed’s Favorite Inflation Measure Sped Up in October appeared first on New York Times.
