San Francisco Frontiers - US Fed's favored inflation gauge ticks up in October

The personal consumption expenditures (PCE) price index rose 2.3 percent in the 12 months to October, up from 2.1 percent in September, the Commerce Department announced in a statement.

This was in line with the median forecast from economists surveyed by Dow Jones Newswires and The Wall Street Journal.

Despite the small uptick last month, headline PCE inflation remains close to the Fed's long-term target of two percent, keeping the bank's inflation fight largely on track.

The Fed -- the independent US central bank -- is responsible for tackling inflation and unemployment, largely by hiking or lowering interest rates to affect demand.

This indirectly impacts the cost of borrowing for consumers and businesses, affecting everything from mortgages to car loans.

"What I think, particularly from a market perspective, catches your eye is that the inflation readings came in right as expected," Nationwide chief economist Kathy Bostjancic told AFP.

"Those readings are encouraging enough, in our opinion, for the Federal Reserve to go ahead and cut rates 25 basis points next month," she added. "But you know, it's still a close call."

- Rise in healthcare costs -

The increase in inflation was driven by the services sector, where prices increased by 3.9 percent from a year earlier. Goods prices decreased 1.0 percent over the same period.

The largest contributor to the increase was healthcare, a category that includes both hospitals and outpatient services, the Commerce Department said.

On a monthly basis, the PCE price index rose 0.2 percent between September and October, the same as the month prior, the Commerce Department said. This was also in line with expectations.

Excluding the volatile food and energy segments, the core PCE price index was up 2.8 percent from a year earlier, and by 0.3 percent from a month earlier.

Personal income rose 0.6 percent month-on-month, an acceleration from September, when it rose by 0.3 percent.

The rate of personal saving as a percentage of disposable income rose to 4.4 percent, up slightly from a revised figure of 4.1 percent a month earlier.

This indicates that consumers saved more of their money last month than they did in September.

- Trump and the Fed -

Trump's victory in the presidential election on November 5 has been broadly welcomed in the financial markets, but there have also been some concerns that his widely-pledged rise in tariffs could prove to be inflationary.

In a worst-case scenario, this could force the Fed to keep interest rates higher than they otherwise would be, which could hit consumers in the pocket.

Futures traders currently see a roughly 70 percent chance that the Fed will cut rates by a quarter of a percentage point next month, up slightly from last week, according to data from CME Group.

But next year, some analysts think the Fed could move more cautiously as it awaits the outcome of Trump's economic policies.

"We now think that there's likely to be three 25 basis point rate cuts" in 2025, said Bostjancic from Nationwide.

"Previously, we were actually looking for 125 basis points," she added. "So, you know, we did pair that back."

"We think the FOMC can pause in December on data like this, urging a wait-and-see approach to cutting rates gradually," economists at high Frequency Economics wrote in a note to clients, referring to the rate-setting Federal Open Market Committee.

L.Lopez--SFF