US consumer price inflation is in focus as the Federal Reserve prepares for its latest monetary policy decision next week
The core PCE index showed lower annual inflation when food and energy prices are excluded AFP

Annual inflation measured by the core Personal Consumption Expenditure (PCE) index slightly slowed last month, still remaining well above the Federal Reserve's target.

The core PCE, which excludes costs of food and energy and is closely followed by the Fed to decide on interest rates, rose 3.7% in the 12 months through September, from 3.8% in August and 4.3% in July, the Commerce Department said in a statement Friday. The Fed targets an annual inflation of 2%.

On a monthly basis, the index rose 0.3%, more than the 0.1% increase in August. When energy and food are included, the monthly rate was 0.4% and the annual 3.4%, the same increases of the previous month.

The report also showed that personal consumption accelerated 0.7% in September from 0.4% in August, while income growth slowed to 0.3% from 0.4%.

Fed Meeting

The Federal Open Market Committee meets Oct. 31 and Nov. 1 to decide on interest rates. The Fed maintained its key rate in the range of 5.25% to 5.50% on Sept. 20, the highest level in 22 years.

The possibility of another Federal Reserve interest rate hike has dented market optimism
The FOMC meets next week AFP

In a speech on Oct. 19, Fed Chair Jerome Powell acknowledged that inflation has slowed, but signaled that it's too early to declare victory.

"Inflation is still too high, and a few months of good data are only the beginning of what it will take to build confidence that inflation is moving down sustainably toward our goal," Powell said in New York. "We cannot yet know how long these lower readings will persist, or where inflation will settle over coming quarters."

Another inflationary pressure comes from the still strong economic activity. The American economy more than doubled its pace of expansion in the third quarter as consumer spending remained solid.

Gross domestic product expanded at an annual rate of 4.9% in the three months ended in September, the Commerce Department said Thursday. It's the fastest growth since the 7% rate in the fourth quarter of 2021. Economists surveyed by Reuters estimated 4.3%. In the second quarter, GDP grew 2.1%

The next major reading of the U.S. economy is the labor report for the month of October, which will be released Nov. 3. In September, the number of new jobs jumped to 336,000, the highest in eight months.