Inflation drops to lowest level since 2021

The final regularly scheduled federal reporting ahead of the 2024 presidential election found U.S. inflation slipped to 2.1% in September, the lowest level since February 2021 and a data point reflecting a continued easing of price increases on consumer goods and services since a peak of nearly 7.3% in June 2022.
Thursday’s Personal Consumption Expenditures report from the Commerce Department shows the price index rose 0.2% on a monthly basis and came in at an annual rate of 2.1%, down from August’s 2.3%. Core PCE, which strips out volatile food and energy prices, measured 2.7% for the month, up 0.3% from August. The new report also found personal income and consumer spending rose on a monthly basis, 0.3% and 0.5%, respectively.
The Personal Consumption Expenditures index is the Federal Reserve’s preferred inflation metric and one that tracks prices on a representative basket of goods and services similar to the Labor Department’s more mainstream inflation measure, the Consumer Price Index. But while the CPI price tracking is based on consumer survey results, the PCE looks at data on goods and services sold by businesses.
Last month, the Fed levied a 0.5% reduction to its benchmark federal funds rate, a move that signaled the monetary body’s shift in focus from quelling inflation to bolstering a weakening U.S. jobs market. Before the adjustment, the Fed’s overnight intrabank lending rate had stood at 5.25% to 5.5% since last summer and was the highest in 23 years after a series of 11 straight increases levied earlier by the monetary body in its fight against high inflation.
“It’s essentially the soft landing that many of us dreamed of,” said Gregory Daco, chief economist at the tax and accounting firm EY, referring to a scenario in which high interest rates manage to tame inflation without causing a recession, per The Associated Press. “You really have the best of both worlds, with consumer spending growth remaining resilient and inflation moving within striking distance of the Fed’s 2% target.”
The latest PCE assessment comes on the heels of a separate Commerce Department report released Wednesday that also found evidence of positive U.S. economic trends.
According to that report, U.S. gross domestic product grew by 2.8% in the third quarter of the year, a rate that reflects a healthy arc for the economy. The increase was supported by a 3.7% increase in consumer spending over the three-month period from July through September. Consumer spending has an outsize impact on the overall U.S. economy, making up some two-thirds of the nation’s GDP, a measure that accounts for all the goods and services produced in a specified time period.
At a press conference after last month’s policy meeting, Fed Chairman Jerome Powell said the rate-setting Federal Open Market Committee was confident that inflation was well in hand and headed for the target annual rate of 2%.
“Our patient approach over the past year has paid dividends,” he said. “Inflation is now much closer to our objective and we have gained greater confidence that inflation is moving sustainably toward 2%.”
Powell also noted that the so-called “soft landing” of reining in inflation without spurring recessionary conditions was an attainable goal, and one that the rate adjustment was aiming for.
“We’re trying to achieve a situation where we restore price stability without the kind of painful increase in unemployment that has come sometimes with this inflation,” he said. “I think you could take today’s action as a sign of our strong commitment to achieve that goal.”
The Fed is set to meet next week and is widely expected to levy another interest rate cut, though most economists are predicting it will be a more conservative 0.25% reduction.