A key gauge of US consumer prices posted its second-smallest increase this year as spending rose. This leads to an indication that the Federal Reserve's interest rate hike succeeded in cooling inflation without triggering a recession.
The price index of personal consumption expenditures excluding food and energy, which Fed Chairman Jerome Powell insisted this week was a more accurate gauge of the direction of inflation, rose below a forecast 0.2% in October from a month earlier.
From a year earlier, the gauge rose 5%, a step down from the revised 5.2% increase in September.
The overall PCE price index rose 0.3% for the third month and was up 6% from a year ago, still well above the central bank's 2% goal.
Personal spending, adjusted for changes in prices, rose 0.5% in October, an improvement from the 0.3% advance seen the previous month and largely reflecting a jump in spending on goods.
Similar to last month's consumer price index data, the report showed that although inflation is starting to ease, it is still too high. However, the decline in prices is certainly welcome, Powell stressed on Wednesday that the US is far from price stability and that they need "more evidence" to provide comfort that inflation is actually falling.
Policymakers are expected to continue raising interest rates into next year, albeit at a slower pace, and remain limited for some time.
Stock futures extended gains and the yield on the 10-year Treasury note remained lower.
Driven by a resilient labor market and sustained wage gains, the increase in household spending suggests a strong start to fourth-quarter gross domestic product.
Inflation-adjusted output for goods rose 1.1% in October, driven by purchases of motor vehicles. Spending on services rose 0.2%, boosted by spending on lodging and food services.
However, it is unclear whether consumers will be able to maintain that momentum in 2023 or not. With inflation still outpacing wage increases, many households rely on savings, stimulus checks from some state governments, and credit cards to keep spending. And there is growing concern that restrictive monetary policy will push the US economy into recession.
