Inflation rose one-tenth of a percentage point to 2.8% for the year ending in September, according to a hotly anticipated release of the Federal Reserve’s preferred inflation gauge.
The Friday report by the Bureau of Labor Statistics comes after the longest government shutdown in U.S. history delayed the release schedule of key economic reports.
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The report shows that inflation is still stubbornly high. That is a political problem for Donald Trump, as voters continue to cite the cost of living as their main concern. It’s also a headache for the Fed, which is also trying to prevent the labor market from deteriorating.
On a month-to-month basis, PCE inflation increased 0.3%.
Core inflation, which strips out volatile food and energy prices, fell slightly to 2.8% on an annual basis. Core inflation was 0.2% on a monthly basis.
The Fed’s goal is 2% annual inflation, a target that the Fed hasn’t been able to achieve since inflation began taking off in early 2021.
The Fed hiked interest rates to historic levels in response to the mounting inflation of the past few years, but as inflation has begun to slowly move to a healthier level, the central bank has begun slowly lowering its rate target.
Because of the shutdown-induced data blackout, the lack of inflation data has made the Fed’s job more challenging and has created further uncertainty in the markets.
The release of the most closely watched inflation gauge, the consumer price index, was canceled for October, although some information for that month will be included in the November release of the CPI, which is set for next week.
Despite the shutdown, the Bureau of Labor Statistics did release the September CPI data, which showed inflation rose 3% on an annual basis — a full percentage point above the Fed’s target.
The Fed is walking a tightrope when it comes to inflation and interest rates. On the one hand, there are signs that the labor market is gradually slowing, which would typically prompt a softer monetary policy stance. On the other, inflation is still too high, which, all else equal, would prompt tighter monetary policy.
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The economy added 119,000 jobs in September and the unemployment rate ticked up a tenth of a percentage point to 4.4%, the BLS said in its most recent jobs report.
That headline number was better than expected, but there were also downward revisions to past months, which showed the labor market has been in worse shape than was previously reported.