US Economy Hits a Plateau: Core PCE Price Growth Stagnates at 2.7% for 5 Consecutive Months

(New York = Yonhap News) Reporter Ji-heon Lee = The key inflation indicators considered important by the Federal Reserve, the US central bank, were found to have stopped slowing and remained stagnant since last May.

As the rate of inflation slowdown has not met market expectations and consumer spending has also shown a solid trend, the prospect that the Federal Reserve could slow the rate of interest rate cuts is expected to gain more weight.

The US Department of Commerce announced on the 31st (local time) that the core personal consumption expenditure price index (PCE) in September rose by 2.7% compared to the same month last year.

This figure is higher than the specialist forecast (2.6%) drawn up by Dow Jones.

The monthly rate of increase, which reflects recent changes in core prices, was 0.3%, which was in line with market expectations but up on August (0.2%).

The PCE Price Index is a price index that measures the prices US residents pay when purchasing goods and services.

When judging whether monetary policy goals have been achieved, the Federal Reserve uses the PCE price index as a reference point, instead of the relatively better known Consumer Price Index (CPI).

The core index is an index that excludes energy and food prices, which have high volatility in the short term, from the representative index, and is believed to reflect the underlying price trend relatively better.

The growth rate of the core PCE price index slowed to 2.7% in May, fell briefly to 2.6% in June, and has remained at 2.7% for three consecutive months in July.

Based on the core PCE price index that the Federal Reserve values, it can be assessed that the inflation rate has not shown a sustained slowdown to the target level (2%) in recent months.

However, the rate of increase in the PCP price index, which includes energy and food prices, was 2.1% in September, the lowest in 3 years and 7 months since February 2021 (1.8%). The rate of increase compared to the previous month was 0.2%.

The 2.0% drop in the energy and service product price index compared to the previous month contributed significantly to the slowdown in the growth rate of the representative index in September.

The growth rate of consumer spending, also announced on this day, exceeded expert forecasts, suggesting the possibility of continued solid consumption in the US economy.

The nominal personal consumption expenditure growth rate in September was 0.5% compared to the previous month, an increase compared to August (0.3%). Experts’ prediction was 0.4%.

Real personal consumption expenditure also increased by 0.4% compared to the previous month, a significant increase compared to August (0.2%).

The Federal Reserve has already started its interest rate reduction cycle with the implementation of the ‘Big Cut’ (interest rate cut 0.50% point) last month, and as the price indicators that the values ​​of the Federal Reserve remain unchanged and consumption is also showing a solid trend, the Federal Reserve initially set the pace of future interest rate cuts The possibility that it could be delayed longer than expected is likely to increase.

Meanwhile, big names on Wall Street are also issuing warnings that the era of low inflation as in the past is over.

BlackRock CEO Larry Fink said on the 29th, “We live in a world with more inherent inflation than we’ve ever seen before,” and Morgan Stanley CEO Ted Pick said on the same day , “Financial restraint and zero interest rates.” The era of zero inflation is over,” he said.

JP Morgan Chairman Jamie Dimon also warned of the risk of stagflation at an event on the 28th, saying that inflation may not disappear as quickly as previously thought.

pan@yna.co.kr