In brief
U.S. personal consumption expenditures climbed 0.5% in September, the largest monthly gain since March, as gasoline and other energy costs surged 9.2% on geopolitical pressures. The resulting 3.6% year‑on‑year inflation rate exceeds the Federal Reserve's 2% goal, prompting markets to anticipate additional rate hikes. Consumer spending rose 0.5% but slowed, and the personal saving rate fell to 3.8%, the lowest in nearly four years.
On October 29, the U.S. Bureau of Economic Analysis released September data showing that the personal consumption expenditures (PCE) price index rose 0.5 percent month‑on‑month, the largest gain since March, and 3.6 percent year‑on‑year, the highest since May. The inflation rise was largely driven by a 9.2 percent jump in gasoline and other energy prices as tensions in the Middle East, including the Iran war and restrictions on shipping through the Strait of Hormuz, kept fuel costs elevated.
Core inflation steadies
After excluding food and energy, the core PCE price index climbed 0.3 percent month‑on‑month in September, matching a revised reading for August, while the core PCE inflation rate rose to 3.1 percent year‑on‑year, up from 3 percent in August. The core reading reflects a steady but elevated inflation environment that has remained above the Federal Reserve’s 2 percent target for more than five years.
Consumer spending and income
Consumer spending increased 0.5 percent in September but slowed from the 1.3 percent rise in August, according to BEA data. When adjusted for inflation, spending remained flat, indicating that higher prices absorbed the nominal gain. Personal income rose 0.2 percent, a slower pace than in August and below the rise in prices. With households still spending, the personal saving rate fell to 3.8 percent, the lowest it has been in nearly four years.
Federal Reserve reaction
The report came a day after the Federal Reserve set its benchmark interest rate unchanged at a range of 3.75 percent to 4 percent, following a quarter‑point rate hike in September. Fed officials acknowledged that inflation “remains elevated.” Financial markets anticipate another rate increase this year, with traders pricing in an over 80 percent chance of a hike at the Fed’s December meeting, according to CME’s FedWatch Tool.
Overall, the September PCE readings sustain the narrative that inflation remains above target, influenced heavily by volatile energy prices, and suggest the Fed may continue tightening policy as part of its mandate to stabilize prices and support economic growth.
