Inflation edged higher in October as the Federal Reserve is looking for clues on how much it should lower interest rates, the Commerce Department reported Wednesday.

The personal consumption expenditures price index, a broad measure that the Fed prefers as its inflation gauge, increased 0.2% on the month and showed a 12-month inflation rate of 2.3%. Both were in line with the Dow Jones consensus forecast, though the annual rate was higher than the 2.1% level in September.

Excluding food and energy, core inflation showed even stronger readings, with the increase at 0.3% on a monthly basis and an annual reading of 2.8%. Both also met expectations. The annual rate was 0.1 percentage point above the prior month.

Services prices generated most of the inflation for the month, rising 0.4% while goods fell 0.1%. Food prices were little changed while energy was off 0.1%.

Fed policymakers target inflation at a 2% annual rate; PCE inflation has been above that level since March 2021 and peaked around 7.2% in June 2022, prompting the Fed to go an on aggressive rate-hiking campaign.

While the inflation rate has fallen significantly since the Fed started tightening, it remains a nettlesome problem for households and figured prominently into the presidential race. Despite its deceleration over the past two years, the cumulative impacts of inflation have hit consumers hard, particularly on the lower end of the wage scale.

Consumer spending was still solid in October, though it tailed off a bit from September. Current-dollar expenditures rose 0.4% on the month, as forecast, while personal income jumped 0.6%, well above the 0.3% estimate, the report showed.

On the inflation side, housing-related costs have continued to boost the numbers, despite expectations that the pace would cool as rents eased. Housing prices rose 0.4% in October.

The Fed follows a broad dashboard of indicators to gauge inflation but uses the PCE figure specifically for its forecasting and as its main policy tool. The data is considered broader than the Labor Department’s consumer price index and adjusts for behavior in consumer spending such as replacing more expensive items for less costly ones.

Officials tend to consider core inflation as a better long-term gauge but use both numbers in considering policy moves.

The release follows consecutive rate cuts by the Fed in September and November totaling three quarters of a percentage point. Though the November reduction happened after the month the report covers, markets had been widely anticipating the move.

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The latest tariff proposal from President-elect Donald Trump would likely put upward pressure on inflation in the United States, according to Goldman Sachs.

On Monday, Trump said on social media site Truth Social that he would impose an additional 10% tariff on goods from China and a 25% duty for Canada and Mexico. Goldman chief economist Jan Hatzius said in a note that the proposed levies would result in a notable increase for consumer prices in the U.S..

“Using our rule of thumb that every 1 [percentage point] increase in the effective tariff rate would raise core PCE prices by 0.1%, we estimate that the proposed tariff increases would boost core PCE prices by 0.9% if implemented,” Hatzius said.

“PCE” refers to the personal consumption expenditures price index. The core PCE, which strips out food and energy prices, is the preferred inflation reading of the Federal Reserve.

A tariff-linked increase in core PCE could scramble the calculations around Fed rate cuts. The October PCE reading is due out on Wednesday, and it’s expected to show a year-over-year increase of 2.8% for core, according to economists surveyed by Dow Jones. In other words, inflation is still above the Fed’s target of 2%, and the tariffs could widen that gap.

Traders have been dialing back their expectations for Fed rate cuts in 2025, though it is unclear how much of that is due to election results versus a resilient U.S. economy. Fed Chair Jerome Powell has said the central bank will consider the impact of tariffs and other fiscal policy changes on the direction of inflation once the details become clear.

To be sure, it remains to be seen whether the tariffs will actually be implemented at the levels Trump proposed — or what exceptions might be made. The President-elect suggested in his social media post that the tariffs were conditional on changes to immigration policy and drug enforcement, specifically fentanyl. Some of Trump’s advisors and supporters have characterized the tariffs he proposed during the campaign as a bargaining position rather than a set policy.

Hatzius, for his part, said it seems more likely that Canada and Mexico would avoid across-the-board tariffs than China.

The three countries in question account for 43% of U.S. goods imports, and the tariffs would result in slightly less than $300 billion in revenue annually, according to Goldman Sachs calculations.