Hope you weren’t expecting this morning’s inflation data to tell you whether or not the Federal Reserve will raise interest rates at its December 14 meeting. (I believe that an interest rate increase at the Fed’s November 2 meeting is just about a dead issue. A week before the election? Come on.)
The data this morning was for a series called PCE for Personal Consumption Expenditures, which just happens to be the Fed’s preferred measure of inflation.
The Federal Reserve would like to see inflation at its target rate of 2% or so before raising interest rates but the central bank certainly doesn’t want to hold off on a rate increase for so long that inflation runs out of control.
For August the PCE Price Index was up 0.1%. That brings the year over year change in the PCR Price Index to 1%.
The core PCE, the key measure since it excludes food and energy prices and thus avoids having the effects of a change in oil prices overwhelm changes in other prices, was up 0.2%. That brings the year over year change in core PCE to 1.7%. That’s a slight increase from the 1.6% annual rate seen in July.
Is an uptick from 1.6% to 1.7% enough to push a deeply divided Federal Reserve into raise rates? Good question and I’m not certain about the answer. I think that the upward trend in core PCE inflation does buttress the argument for an interest rate move in December, but I don’t know if it’s enough to swing those opposed to an increase into the pro-increase camp. And I don’t know how much dissent Fed chair Janet Yellen is willing to tolerate in any vote. She’s got a majority but the Fed doesn’t like to move until it has reached something like consensus.
The Fed will see September, October, and (probably) November data before needing to make a December decision. That’s three more months to establish a convincing trend.