The inflation indicator favored by the Federal Reserve has just gone in the wrong direction. At the same time, President elect Trump has promised to impose massive tariffs, which could push up the cost of living.

The data released by the US Department of Commerce on Wednesday (November 28) showed that PCE rose 2.3% year-on-year in October, higher than the 2.1% in September. The month on month increase was 0.2%, unchanged from September.

Service industry inflation is the main reason for the monthly increase, with service industry prices rising by 0.4% compared to September, while commodity prices rose by 0.1%. As the two biggest touchpoints for consumers, food and natural gas prices remain relatively stable.

The inflation data released on Wednesday fully meets economists' expectations: FactSet data shows that the market generally expects a month on month increase of 0.2% and a year-on-year increase of 2.3%.

Elizabeth Renter, a senior economist at NerdWallet, said, "The overall situation is that inflation remains a risk, and that hasn't changed. But this report is not worth the fuss

Economists had previously predicted that inflation would further intensify in October, partly due to high housing related costs and some perceived one-time price increases (especially airfare and portfolio management fees), and also unfavorable compared to the rapid cooling of inflation in the same period last year.

1. Controlling inflation is indeed not easy

The process of controlling high inflation is expected to be bumpy, and the latest data may be just that. However, some persistent price pressures, such as significant expenditures on rent and mortgages, have made it difficult for inflation to stabilize at the central bank's target level of 2%.

In a statement, Olu Sonola, the head of US economic research at Fitch Ratings, said, "As we enter a potentially bumpy inflation journey in 2025, the anti inflation trend we saw earlier this year has actually come to a halt. The Federal Reserve will be concerned and cautious, but overall data continues to point to a rate cut in December and a very slow pace of rate cuts in 2025

Excluding the often volatile categories of food and natural gas prices, the core PCE increased by 0.3% month on month and grew by 2.8% in the 12 months ending in October. The core PCE readings released in September were 0.3% month on month and 2.7% year-on-year, respectively.

Dan North, a senior economist at Allianz North America Trading Company, said, "There has been basically no progress in core PCE for six months. 2.8% is still a long way from 2%. And 2% does not mean just breaking through 2%, but rather indefinitely falling to 2% or lower

When Federal Reserve policy makers meet next month, it is widely expected that they will cut interest rates by 25 basis points. North stated that although this will mark the third consecutive interest rate cut by the Federal Reserve, future policy easing may be minimal, partly due to some potential stubborn price pressures, but also possibly due to fiscal and federal policies.

2. The proposed tariffs pose an 'upward risk' to inflation

However, there is widespread concern that the current trend and trajectory of inflation may undergo significant changes in the coming months.

On Monday, Trump announced his plan to impose a 25% tariff on all products from Mexico and Canada, and an additional 10% tariff on major Asian countries.

Economists pointed out on Tuesday that this move will push up consumer prices, and PCE may rise by 0.5% to 1.1%.

The proposed tariffs on Canada and Mexico pose an upward risk to our inflation forecast, "economists from Deutsche Bank's research department wrote in a report on Monday

However, NerdWallet's Renter stated that the scope and extent of this risk are currently uncertain.

She said, "We can only wait and see. I think we need to interpret campaign or social media promises with caution as definite policies. But we know that tariffs lead to inflation, and history has proven this

3. Consumers will continue to provide more fuel for the economic engine

PCE is part of the US Department of Commerce's monthly personal income and expenditure report, which includes comprehensive data on how Americans earn, spend and save.

In October, for consumers driving economic growth, this financial foundation was indeed solid: personal income surged by 0.6%, the largest monthly increase since March; Disposable income (income minus taxes) increased by 0.7% in nominal terms and 0.4% after considering inflation factors.

Economists predict that due to the devastating hurricanes that have hit the southeastern United States in succession, US spending will be hit, but it has also withstood the test, growing by 0.4% for the month (0.1% after considering inflation factors).

North said, "This is a good start for holiday sales." He also added that he expects holiday consumption to exceed the National Retail Federation's forecast of a 2.5% to 3.5% increase.

More than two-thirds of the total consumer spending has helped drive steady economic growth. Earlier on Wednesday, the US Department of Commerce reported that the US GDP for the third quarter grew by 2.8% year-on-year, which is consistent with the initial estimate.

However, Renter pointed out that although the data showed strong macro level spending and healthy consumer financial situation, not all Americans are the same.

She said, "It's important to remember that overall, the economic situation is good, and consumers are enthusiastically consuming, but there are many colors and subtle differences hidden behind these data