US consumer spending remains strong in September

A key measure of US inflation kept its pace in September while consumer spending remained strong, government data showed Friday, fueling expectations of a further interest rate hike by the central bank.

The latest data fails to provide reprieve to President Joe Biden or the Federal Reserve, with price pressures still elevated.

The Fed's preferred inflation measure, the personal consumption expenditures (PCE) price index, rose 6.2 per cent from a year ago in September.

While the index held steady from August as well, in line with expectations, a measure removing the volatile food and energy components edged closer to a multi-decade high.

Policymakers have been battling to cool surging inflation, worsened by supply chain snarls and the fallout from Russia's invasion of Ukraine, which sent food and energy prices soaring globally.

The Fed focuses on the PCE price index as it reflects consumers' actual spending, including shifts to lower cost items, unlike the more well-known consumer price index (CPI).

Although the CPI has come down from June's decades-high rate of 9.1 per cent, higher prices remain top-of-mind for voter's days before elections.

While inflation "slowed in the third quarter, with energy prices coming down," Biden said in a statement, he reiterated that policymakers have more work to do to lower costs.

Friday's data also showed that household spending rose 0.6 per cent in September, with housing and utilities, along with transportation services, becoming pricier.

"Consumers earned more and ramped up their spending," said Oren Klachkin of Oxford Economics.

But this is "a dynamic that can't persist indefinitely," with households dipping into savings to keep up with price hikes, he said.

Food prices were 11.9 per cent higher than a year ago in September, while energy prices spiked 20.3 per cent, data showed.

The Fed has raised interest rates aggressively this year to try to cool demand and lower inflation pressures, and officials are widely expected to press on with rate hikes at an upcoming policy meeting next month.

Excluding food and energy, the PCE price index rose 5.1 per cent from last year, pointing to broader increases in the costs of goods and services.

This brings it "closer towards a multi-decade high," noted Klachkin.

Compared with the prior month, the index rose 0.5 per cent, excluding food and energy.

High inflation is "forcing the Fed to hike rates further," said Rubeela Farooqi, chief US economist at High Frequency Economics, adding that this means there are risks ahead to consumption and growth.