Inflation continues to cool down!U.S. core PCE slowed to 3.5% year-on-year in October, with both personal spending and income growth slowing

U.S. inflation continued to cool in October and consumer spending slowed, indicating that the economy is entering a stage of low-speed growth and solidifying expectations for an interest rate cut by the Federal Reserve.

On Thursday, November 30, the latest data from the U.S. Department of Commerce showed that 1The year-on-year growth rate of the core PCE price index excluding food and energy in October fell to 3.5% from 3.7% in September, in line with market expectations;The month-on-month growth rate was 0.2%, which was slower than the previous value of 0.3%, consistent with market expectations.

Due to falling energy prices, the U.S. PCE (Personal Consumption Expenditures) price index in October was 3% year-on-year, the smallest increase since March 2021less than the 3.1% expected by the market; the month-on-month growth was 0%, which was also slower than expected.

The Fed keeps a close eye on service sector inflation, which excludes housing and energy, and rose 0.1% month-on-month, also the smallest increase so far this year.

It is worth mentioning that core PCE inflation data is the Fed’s preferred inflation target, but the timing of this release makes it particularly important. It is the last personal consumption expenditure (PCE) data before the Fed’s next monetary policy meeting and the last one. Key inflation indicators.

After the release of the U.S. PCE price index, the U.S. dollar index rose about 10 points in the short term and is now at 103.19. The U.S. 10-year Treasury bond yield has risen in the short term and is now at 4.265%. U.S. stock futures showed little volatility in the short term, with Nasdaq 100 index futures maintaining a gain of about 0.3%. Spot gold has little short-term fluctuations and is currently trading at $2,041.35 per ounce.

Personal expenditure and income growth have slowed down, and the savings rate has increased.

Adjusted for inflation, spending on goods rose 0.1% month-on-month, while spending on services rose 0.2%, hurt by a decline in spending on durable goods such as motor vehicles.

Personal income and expenditure both increased by 0.2% month-on-month in October, with both growth rates slowing down. At the same time, personal income increased by 4.5% year-on-year, the lowest level since December 2022; expenditure increased by 5.3% year-on-year, the lowest level since February 2021.

In terms of wage growth, at the same time, wages and salaries without inflation adjustment only increased by 0.1% month-on-month, which was the smallest increase this year; however, the personal savings rate increased, from 3.7% to 3.8%.

PCE cooling helps strengthen interest rate cut expectations

The Federal Reserve’s latest Beige Book survey released on Wednesday showed economic activity has slowed in recent weeks as households scale back discretionary spending. Labor demand has also eased.

And as the Fed relies more and more on data to assess the trend of the economy and inflation, the cooling of the PCE may also help reassure policymakers, thereby strengthening market predictions for the Fed to cut interest rates.

According to data compiled by the media, investors are currently pricing in an interest rate cut of 115 basis points in 2024, with the first interest rate cut expected in May. Hedge fund tycoon Ackman recently said he expects the Fed to take action sooner, with a rate cut possibly coming in the first quarter.

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