In brief
The U.S. Bureau of Economic Analysis reported a 0.5% month‑on‑month jump in the PCE price index, the largest since March, driven mainly by a 9.2% rise in gasoline and energy goods. Year‑over‑year PCE inflation climbed to 3.6%, the highest since May, exceeding the Federal Reserve’s 2% target. The data followed the Fed’s decision to leave rates unchanged and indicate continued inflationary pressures.
The U.S. Bureau of Economic Analysis released data on Thursday showing that inflation in September accelerated, with the personal consumption expenditures (PCE) price index rising 0.5 percent month‑on‑month, the largest gain since March, and climbing 3.6 percent year‑on‑year, the highest level since May. The increase was largely driven by a 9.2 percent jump in gasoline and other energy prices, amid heightened tensions in the Middle East and restrictive shipping conditions through the Strait of Hormuz.
In the monthly report, energy goods and services contributed most sharply to the rise. Gasoline prices were the primary factor, reflecting geopolitical pressures that have kept fuel costs elevated. The core PCE price index, which excludes the volatile food and energy categories, increased 0.3 percent from a month earlier, matching a revised August reading, and rose 3.1 percent year‑on‑year, up from 3 percent.
Consumer spending in September grew 0.5 percent, a slowdown from August, but remained unchanged when adjusted for inflation because higher prices offset the gains. Personal income increased 0.2 percent, also below the pace of inflation. Consequently, the personal saving rate fell to 3.8 percent, the lowest level in nearly four years.
These figures followed the Federal Reserve’s decision the previous day to hold its benchmark interest rate steady at a 3.75 percent to 4 percent range, noting that inflation remains elevated. The Fed had previously raised rates by a quarter‑point in September and has left markets expecting possible further hikes later in the year.
Market participants remain vigilant, with the CME FedWatch Tool pricing in an 80 percent chance of a rate increase at the December meeting. The higher energy prices are expected to continue influencing inflationary trends, and the Fed’s policy stance may shift should the pace of price growth not subside.
Economists had largely anticipated the 0.5 percent month‑on‑month rise and the 3.6 percent year‑on‑year figure, but the sharp increase in energy costs was seen as a surprise element that could prolong elevated inflationary expectations throughout the year.
The report underscores the ongoing challenge for policymakers as rising energy costs push the PCE index above the 2 percent target, with inflation having stayed above that threshold for more than five years. Federal Reserve officials will likely weigh these developments closely as they determine the trajectory of monetary policy in the remaining months of 2026.
