Core inflation rises 3.1% year-on-year and 0.3% month-on-month.
Nominal consumer spending edges up 0.5%, while real disposable income contracts 0.3%.
The pace of US inflation, as measured by the Personal Consumption Expenditures (PCE) price index, accelerated in September. While overall consumer spending increased, real spending—adjusted for inflation—showed virtually no growth. Real disposable income also declined, pointing to a weakening in household purchasing power.
The Department of Commerce’s Bureau of Economic Analysis (BEA) reported on the 29th (local time) that the September PCE price index rose 3.6% from the same month a year earlier and increased 0.5% from the previous month. Both figures were higher than August's readings of 3.4% and 0.3%, respectively.
The core PCE price index, which excludes volatile food and energy components, rose 3.1% year-on-year, topping August's 3.0% increase. The month-on-month increase stood at 0.3%. August's monthly rise was upwardly revised from a previously reported 0.2% to 0.3%, keeping the monthly growth rate steady for two consecutive months. Both headline and core year-on-year and month-on-month metrics matched market consensus estimates compiled by Investing.com.
Personal consumption expenditures rose 0.5% in September from the prior month. However, when stripping away the impact of inflation, the real spending growth rate plummeted from 0.5% (revised) in August to 0.0% on a rounded basis in September. This indicates that the vast majority of the increased spending was merely a reflection of higher prices.
Incomes also failed to keep pace with inflation. While personal income and disposable income (personal income minus taxes) each increased 0.2% month-on-month, real disposable income dropped 0.3%. The personal saving rate, representing the proportion of disposable income saved, stood at 3.8%.
The latest data was released a day after the Federal Reserve decided to hold interest rates steady. At the conclusion of its Federal Open Market Committee (FOMC) meeting the previous day, the Fed maintained the federal funds rate target range at 3.75% to 4.00%. In its policy statement, the central bank noted that inflation remains elevated and stated it would assess incoming information to determine the policy stance needed to return inflation to its 2% target. Fed Governor Lisa Cook and Cleveland Fed President Beth Hammack dissented from the decision to hold rates, advocating for a 0.25 percentage point hike.
Meanwhile, third-quarter real gross domestic product (GDP), released on the same day, expanded at an annualized rate of 3.4% from the previous quarter, marking a faster pace of growth compared to the second quarter (2.2%) and beating the 3.2% consensus forecast compiled by FXStreet. Nevertheless, the fact that real spending showed almost no growth and real disposable income declined in September—the final month of the quarter—suggests that underlying household purchasing power has weakened, contrasting with the robust headline quarterly growth.
The Fed raised its benchmark interest rate by 0.25 percentage points in September before pausing in October. Whether inflationary pressures will ease and whether the slowdown in incomes and spending will persist are expected to be critical variables influencing future rate decisions at upcoming FOMC meetings.
