September PCE: Inflation Rises to 3.6%, Core Holds at 3.1%

The Bureau of Economic Analysis reported that the personal consumption expenditures price index rose 0.5% in September, up from 0.3% in August. On a year-on-year basis, headline PCE inflation accelerated to 3.6% from 3.4%. Both figures matched the LSEG consensus estimate.

Core PCE, which strips out food and energy, rose 0.3% month on month. The annual rate ticked up to 3.1% from 3.0%. This is the measure the Federal Reserve watches most closely when setting interest rates. It matched forecasts.

Personal income grew 0.2% in September. That was below the 0.3% consensus. Wages and salaries rose 0.5%.

Consumer spending rose 0.5% in nominal terms. After adjusting for inflation, real spending was flat. Goods spending fell 0.1% in real terms. Services spending rose 0.1%.

The personal saving rate dropped to 3.8% from 4.0% in August. Income grew more slowly than spending. The gap narrowed the saving rate.

Goods prices rose 3.9% year on year. Services prices rose 3.5%. Energy prices drove much of the monthly headline increase.

The BEA revised August core PCE inflation from 0.2% to 0.3% month on month. The revision means core PCE ran at 0.3% for two consecutive months rather than accelerating from a lower base.

The annual core rate for August was unchanged at 3.0%.

Treasury yields fell on the day. The two-year yield dropped 6 basis points to 4.61%. The ten-year yield fell 7 basis points to 4.98%.

The S&P 500 opened lower. At 9:35 AM Eastern time, the index stood at 7,698, down 0.6% from the prior close. The VIX rose to 17.3 from 16.9.

The Federal Reserve held rates at 3.75–4.00% on 28 October. The vote was 10–2. Governor Cook and Cleveland Fed President Hammack dissented in favour of a 25-basis-point increase.

The September PCE report does not change the near-term outlook. Core inflation at 3.1% remains above the Fed's 2% target. The monthly pace of 0.3% annualises to roughly 3.7%. Two consecutive months at that rate support the case for further tightening.

The next Federal Open Market Committee decision is on 8–9 December. Fed funds futures implied roughly 85% odds of a rate increase before the PCE release. Those odds held steady afterwards.

The October jobs report is due on 6 November. Wage growth will feed directly into the next PCE release. October CPI, due 10 November, will give an early signal before the December FOMC meeting.

The BEA will release October personal income and outlays on 2 December. That will be the last PCE reading before the Fed decides in December.

Headline PCE inflation fell to 2.3% in March 2025. It then rose through the year, reaching 3.8% in May 2026. The annual rate dipped to 3.4% in July and August. September's 3.6% reading reversed part of that decline.

Core inflation has been more stable. It held between 2.6% and 3.2% since January 2025.

The personal consumption expenditures price index measures prices paid by consumers for goods and services. The Bureau of Economic Analysis publishes it monthly. The Federal Reserve uses it as its preferred inflation gauge because it covers a broader basket than the consumer price index. It also adjusts for changes in spending patterns.

The PCE price index rose 3.6% in the year to September 2026, up from 3.4% in August. Core PCE, which excludes food and energy, rose 3.1%. The consumer price index, a separate measure, showed 3.7% headline inflation in September. Both gauges remain above the Fed's 2% target.

The Federal Reserve held rates at 3.75–4.00% on 28 October. Two members voted for an increase. Fed funds futures implied roughly 85% odds of a December rate increase before the PCE report. The data matched expectations without shifting those odds significantly.

This article is for informational purposes only and does not constitute investment advice.