Cheaper gas holds down inflation, PCE shows, but the cost of everything else is still going up fast

In a more worrisome sign, another measure of inflation that omits volatile food and energy costs jumped 0.6% last month. That was above Wall Street’s 0.5% forecast for the so-called core PCE.

The Federal Reserve views the PCE index as the best barometer of inflation trends.

Key details: The rate of inflation over the past year slowed a bit to 6.2% from 6.4% in the prior month.

The core rate of inflation in the past 12 months, however, climbed to 4.9% from 4.7%. It had touched a 40-year high of 5.3% in February.

Unlike it’s better-known cousin, the consumer price index, the PCE gauge takes into account how consumers change their behavior in response to higher prices.

They might substitute cheaper goods such as ground beef for more expensive ones like ribeye to keep their costs down. Or stay at a cheaper “airbnb” instead of a hotel.

The CPI showed inflation rising at a 8.3% yearly rate in August.

Big picture: High inflation partly derailed the economy earlier this year. Now soaring interest rates are set to slow the economy even further in the months ahead.

The Fed is jacking up rates to try to rein in inflation , but when the cost of borrowing goes up so much, the economy weakens. Many economists predict the U.S. could sink into a second recession in four years by early 2023.

Market reaction: The Dow Jones Industrial Average
DJIA,
-1.54%
and S&P 500
SPX,
-2.11%
were set to open lower in Friday trades. Stocks have tumbled the past few weeks in response to higher interest rates and the growing threat of recession.