Inflation on track? Goldman Sachs predicts September PCE to approach the Fed's 2% target

According to the Zhitong Finance and Economics APP, the US September Personal Consumption Expenditures (PCE) report will be released on October 31, 2024. Goldman Sachs economists pointed out in a recent report regarding this data that they predict a 2.04% increase in the inflation index over the next 12 months, rounded to 2%, which is the Federal Reserve's target inflation rate.

The Personal Consumption Expenditures report will provide the latest insights on inflation trends, including both the overall and core Personal Consumption Expenditures Price Index, which are closely monitored by the Federal Reserve when making monetary policy decisions. The Personal Consumption Expenditures report is often described as the Federal Reserve's preferred inflation indicator.

It is worth noting that Goldman Sachs expects the "core" Personal Consumption Expenditures to be at 2.6%. Core inflation rates exclude food and energy, which the Federal Reserve considers a better indicator of long-term trends. The PCE annual rate is 2.6%, much lower than the 3.3% reported based on the CPI report last week.

Based on existing PPI and CPI data, multiple economists expect the core PCE to increase by 0.2% in September, possibly rising to 0.3%, compared to the 0.1% increase in August. However, the six-month annualized growth rate of core Personal Consumption Expenditures is expected to slow down from 2.4% in August to 2.2%, showing a downward trend. The annualized inflation rate is expected to be 2.6%, lower than the 2.7% in August.

In addition to Goldman Sachs, other major banks have also expressed their views. Barclays economist Pooja Sriram stated, "Although rounding the core PCE inflation rate to 0.3% is not ideal for the Federal Reserve, it is not worrisome either, as it is the result of a series of benign data. We continue to expect that the core PCE inflation rate will remain around 0.2% in the remaining time of this year."

Last week, CPI and PPI data were successively released, with the US Department of Labor unexpectedly reporting flat PPI data last Friday, while the September CPI data released on Thursday showed a higher-than-expected increase. Some components of the Personal Consumption Expenditures Price Index showed slight strength, indicating a potentially higher inflation rate in September.

Paul Ashworth, Chief North American Economist at Capital Economics, stated, "We expect the rate cut next month to be more moderate, at 25 basis points. We still expect that by early next year, core price inflation will continue to fall back to the target level, but the risk of this view is no longer solely downward."

According to the US Bureau of Labor Statistics, the overall CPI in the US rose by 2.4% year-on-year in September, marking the third consecutive month of decline, slightly higher than the market's expectation of 2.3%; the US PPI rose by 1.8% year-on-year in September, higher than the market's expectation of 1.6%; and rose by 0.0% month-on-month, lower than the market's expectation of 0.1%.

Most economists do not believe that the rise in inflation rates is a sign of renewed upward price pressures. Housing inflation in September cooled significantly. However, high prices still affect consumers' views on the economy. Another survey conducted by the University of Michigan last Friday showed that the preliminary Consumer Confidence Index for October dropped from 70.1 in September to 68.9. Economists had previously expected a reading of 70.8