San Francisco Frontiers - Fresh data show US consumers still strained by inflation

The personal consumption expenditures (PCE) price index, the Federal Reserve's preferred data point for measuring inflation, rose to 2.8 percent on an annual basis in September from 2.7 percent in August.

When food and energy prices were excluded, prices also rose by 2.8 percent in September. However, that was below the 2.9 percent reading in August for the same benchmark.

The mixed report, delayed due to the US federal government shutdown, is the last major inflation reading before the Fed's rate decision next week.

The figures were largely in line with expectations, but included notable increases in some categories that have strained consumers. Durable goods like automobiles, appliances and furniture rose 1.4 percent from a year ago.

A separate report showed consumer sentiment rose in December to 53.3 from 51.0 in November, according to the University of Michigan.

However, consumers today have a diminished outlook for their expected personal income compared with early in 2025 and labor market expectations "remained relatively dismal," said survey director Joanne Hsu.

"Consumers see modest improvements from November on a few dimensions, but the overall tenor of views is broadly somber, as consumers continue to cite the burden of high prices," she said.

The data did not significantly move the US stock market on Friday. Stocks are up modestly for the week, due partly to expectations the Fed will cut interest rates next week.

The Fed has cut interest rates at its last two meetings following indications of a slowdown in the US employment market.

But the Fed has also kept an eye on inflation due to the risk that President Donald Trump's tariffs could reignite a major increase in prices.

EY-Parthenon Chief Economist Gregory Daco predicted the US central bank would cut rates as expected next week, but could face multiple dissents.

Fed Chair Jerome Powell will "persuade several hesitant policymakers to support a third consecutive 'risk management' rate cut, while signaling firmly that additional easing is unlikely before next spring absent a material weakening in economic conditions," Daco said in a note.

Friday's pricing data revealed a "gradual and uneven" tariff pass-through on goods, "exacerbating the affordability crisis," Daco said.

"While many businesses have absorbed cost pressures using pre-tariff inventories and narrower margins, these buffers are slowly eroding," said Daco, who expects rising inflation in late 2025 and early 2026, "further complicating the consumer outlook amid softening labor-market dynamics."

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