The Fed’s Preferred Inflation Measure Eased in October

A closely watched measure of inflation showed continued signs of fading in October, encouraging news for the Federal Reserve as officials try to gauge whether they need to take further action in order to fully stamp out rapid price increases.

The Personal Consumption Expenditures inflation measure, which the Fed cites when it says it aims for 2 percent inflation on average over time, climbed by 3 percent in the year through October. That was down from 3.4 percent the previous month, and was in line with economist forecasts. Compared to the previous month, prices were flat.

After stripping out volatile food and fuel prices for a clearer look at underlying price pressures, inflation climbed by 3.5 percent over the year. That was down from 3.7 percent previously.

The latest evidence that price increases are slowing came alongside other positive news for Fed officials: Consumers are spending less robustly. A measure of personal consumption climbing by 0.2 percent from September. That marked a slight slowdown from the previous month.

The report could offer important insights to Fed officials as they prepare for their final meeting of 2023, which takes place Dec. 12-13. While investors widely expect policymakers to leave borrowing costs unchanged at the meeting, central bankers will release a fresh set of economic projections that could hint at their plans for future policy. Jerome H. Powell, the Fed chair, will also deliver a news conference.

Policymakers have been closely watching how both inflation and consumer spending shape up as they assess how to proceed. They have already raised interest rates to a range of 5.25 to 5.5 percent, the highest level in more than two decades. Given that, many officials have signaled that it may be time to stop and watch how policy plays out.

But the economy has been more resilient to those higher borrowing costs than many had expected, which is keeping some at the Fed wary. If strong demand gives companies the ability to keep raising prices without losing customers, it could be harder to fully vanquish inflation.

“I am encouraged by the early signs of moderating economic activity in the fourth quarter based on the data in hand,” Christopher Waller, one Fed governor, said this week. Still, he added that “inflation is still too high, and it is too early to say whether the slowing we are seeing will be sustained.”