The release of PCE inflation data for October will have reassured the Fed.1 Following an increase in headline PCE inflation in September to 6.3% year-on-year (y/y) (0.3% month-on-month (m/m)), headline PCE inflation fell to 6.0% y/y in October (0.3% m/m) (see Chart 1). Year-on-year, goods prices rose 7.2% and services prices increased 5.4%.
These moves largely reflected increases for food and energy prices, which were up 11.6% and 18.4% y/y respectively. Excluding the volatile food and energy components, core PCE inflation slowed from 5.2% y/y (0.5% m/m) in September to 5.0% y/y (0.2% m/m) in October. Core PCE inflation is the Fed’s preferred measure to judge underlying inflation pressures and the decline in October will therefore have reassured the Fed that inflation is likely to have peaked.