Fed's favored inflation gauge showed price growth continued to slow in September

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An inflation gauge closely watched by Federal Reserve policymakers continued to slow in September as the pace of price growth trended closer to the Fed's target in September.

The Commerce Department reported Thursday that the personal consumption expenditures (PCE) index rose 0.2% in September and increased 2.1% year over year. Those figures were in line with estimates by economists polled by LSEG.

Core PCE, which excludes volatile food and energy prices, rose 0.3% for the month and increased 2.7% from a year ago, in line with estimates.

The Federal Reserve is focusing on the PCE headline figure as it tries to bring the pace of price increases back to 2%, although policymakers view the core data as a better indicator of inflation. Headline PCE was down from 2.3% in August to 2.1% in September, suggesting inflation continued to cool – while the core PCE was little changed from a month ago.

The headline PCE data showed that prices for goods declined by 1.2% in September compared to a year ago, while prices for services were up by 3.7%. Food prices were up 1.2% and energy prices are down 8.1% from a year ago.

Wages were up 0.5% in September from a month ago, the same growth rate as in August. That was slightly higher than the 0.4% growth recorded in July and 0.2% in June – but notably slower than the 1.1% wage growth seen in February.

This is a developing story. Please check back for updates.