PCE report: Fed-preferred inflation gauge rises to 2.8% in Sept

The Federal Reserve’s preferred measure of inflation, the Personal Consumption Expenditures (PCE) price index, increased to 2.8% in September.

This reading, released by the Commerce Department after being delayed by the recent US government shutdown, remains above the central bank’s 2.0% target and marks the highest year-over-year increase since April 2024.

The PCE index also showed a slight month-over-month acceleration from 2.7% in August.

Critically, this data arrives just ahead of the Federal Reserve’s pivotal interest rate decision next week.

Core Inflation and Price Pressures

When stripping out the volatile components of food and energy, the core PCE price index showed a monthly gain of 0.2%, matching the increase seen in August. On an annual basis, core inflation increased 2.8% over the 12 months ending in September, a modest decline from the 2.9% recorded in August.

Meanwhile, the economic climate continues to reflect public frustration over persistently high prices. A survey from the University of Michigan noted that American households maintain a "broadly somber" outlook, primarily due to the "burden of high prices." This sentiment is compounded by the impact of President Donald Trump's sweeping tariffs on imported goods, which have gradually raised costs for consumers.

Consumer Spending Slows But Remains a Growth Driver

Consumer spending, which is the engine of the US economy, accounting for over two-thirds of all economic activity, grew 0.3% in September. This figure represents a moderation from the downwardly revised 0.5% increase posted in August, according to the Bureau of Economic Analysis (BEA).

The monthly spending increase was largely driven by rising prices, particularly for energy items like gasoline. Conversely, spending on long-lasting manufactured products, including motor vehicles and recreational goods, declined, as did outlays on clothing and footwear, leaving overall outlays on goods flat. Spending on services, however, increased 0.4%, spearheaded by growth in housing and utilities, healthcare, financial services, and transportation (such as airline tickets).

When adjusted for inflation (real spending), consumer expenditure was flat for September after rising 0.2% in August. Despite this late-quarter slowdown, consumer spending is projected to have contributed significantly to overall economic growth in the third quarter. The Atlanta Federal Reserve estimates that gross domestic product (GDP) grew at a 3.8% annualized rate in the July-September period, matching the pace of the second quarter.

The BEA is scheduled to release its initial, delayed estimate for third-quarter GDP on December 23.