"Fed's Megaphone": The inflation indicator most favored by the Fed is likely to remain basically flat

A report co-authored by Nick Timiraos, a journalist from The Wall Street Journal known as the "Fed's mouthpiece," points out that according to data released by the U.S. Department of Labor on Tuesday, although rising energy and food costs pushed wholesale prices higher in September, some items included in the Fed's preferred inflation measure may keep that measure roughly in line with levels seen in recent months.

Following a 0.1% month-over-month decline in August, the Producer Price Index (PPI) rose 0.3% in September, in line with economists' expectations. PPI data typically shows more volatility than the prices consumers see in stores and online.

Excluding food and energy, the core PPI increase was below expectations, rising 2.6% year-over-year, marking the mildest increase since July 2024.

Due to a government shutdown that delayed data releases, the PPI data was published more than a month later than originally scheduled. Even two weeks after the deadlock ended, federal statistical agencies are still working hard to catch up on data reporting.

The PPI data has limited impact on Fed policymakers, but some price data released on Tuesday will be used to calculate the Personal Consumption Expenditures (PCE) price index—this is the core measure the Fed uses to gauge progress toward its 2% inflation target.

The PCE index is compiled using relevant data from the PPI, Consumer Price Index (CPI), and import prices. As these data are released, forecasters can reliably estimate the approximate level of the PCE index.

Economists at Citigroup estimate that based on PPI and CPI data, the core PCE excluding volatile food and energy is expected to rise 0.19% month-over-month in September, slightly below the core CPI's month-over-month increase of 0.23% for the same month.

Omair Sharif, an inflation forecaster at Inflation Insights, estimates that the core PCE month-over-month increase for September is 0.2%. If this forecast holds true, the year-over-year increase in core PCE will drop from 2.9% in August to 2.8% in September.

The U.S. Department of Commerce announced on Monday that the official PCE inflation report is scheduled for release on December 5 (next Friday).

Although the September inflation data will be nearly three months old by the time the Fed meets on December 9-10, it will still be the latest official inflation data available for policymakers to consider when weighing interest rate directions.

The U.S. Department of Labor stated that some economic data (such as last month's unemployment rate and consumer inflation data) cannot be retroactively compiled because they rely on contemporaneous surveys. October employment growth data will be released next month, but its timing will be after the Fed meeting.

Currently, the December Fed meeting is expected to be contentious. Officials are divided between two options: one is to cut rates by 25 basis points for the third consecutive time to cushion a weak labor market; the other is to keep rates unchanged to more forcefully address stubborn inflation. (Jin Shi)