• Headline PCE inflation accelerated to 3.6% year over year, while core PCE rose 3.1%, both matching forecasts but moving further above the Fed’s 2% target.
  • The data reinforce expectations that the Federal Reserve will keep interest rates higher for longer, with some officials favoring another hike.
  • Personal spending remained resilient, but the personal saving rate dipped to 3.8%, raising questions about household financial buffers.

Inflation Reaccelerates in September

US inflation showed renewed momentum in September, with the personal consumption expenditures (PCE) price index rising 3.6% from a year earlier, up from 3.4% in August, according to data released Friday by the Commerce Department. The reading matched economists’ expectations but underscores that price pressures remain stubbornly above the Federal Reserve’s 2% goal. On a monthly basis, headline PCE inflation climbed 0.5%, accelerating from 0.3% in August.

Core PCE, which excludes volatile food and energy costs and is closely watched by policymakers, increased 3.1% year over year, also in line with forecasts, and up from 3.0% the prior month. On a monthly basis, core prices rose 0.3%. The data come just two days after the Fed held its benchmark interest rate steady at 3.75%-4.00%, with two officials dissenting in favor of a quarter-point increase.

Services Prices Keep Pressure On

Digging into the details, services prices excluding energy and housing rose 0.4% month over month, while core PCE excluding housing increased 0.3%. The figures suggest that inflation is not solely driven by energy costs—which have been elevated amid geopolitical tensions—but also by persistent pressure in services categories.

“Matching expectations is not the same as good news,” said one market strategist, who requested anonymity to speak candidly. “It means no surprise, but inflation is still moving in the wrong direction. The Fed has little reason to ease anytime soon.”

The report also showed that personal spending remained resilient, though the personal saving rate fell to 3.8% from 4.0% in August. While not signaling immediate distress, the decline in saving could leave households more vulnerable if price pressures persist.

No Relief in Sight for Borrowers

With inflation reaccelerating, the case for the Fed to maintain a restrictive policy stance is reinforced. The central bank’s latest statement described economic activity as strong and inflation as elevated, and officials have signaled that another rate increase remains possible. Markets had largely priced in the data, but Treasury yields and the dollar saw modest moves following the release, according to traders.

The Fed’s next meeting in December will be closely watched for any shift in tone. For now, the data suggest that the “last mile” of disinflation is proving arduous, and that the central bank is not yet ready to declare victory.

“We are not out of the woods yet,” said another analyst, who declined to be named. “The Fed will need to see a sustained decline in core services before it can consider easing. Today’s report doesn’t provide that.”

The Commerce Department’s report also included annual revisions that lowered July’s core PCE reading to 3.0% from an initial 3.3%, highlighting the importance of looking at trends rather than one month’s data. The September figures are subject to further revision.

Correction: An earlier version of this article misstated the prior-month core PCE reading. It was 3.0%, not 3.2%.