Inflation Rose to 3.6% in September as Gas Prices Pushed the Fed’s Preferred Gauge Higher
The personal consumption expenditures price index rose 0.5% in September from August, lifting the annual rate to 3.6%, the Commerce Department said Thursday. The reading lands days before midterm elections in which the cost of living is a central issue, and days after the Federal Reserve held interest rates steady.
Inflation picked up in September, the Commerce Department reported Thursday, with the Federal Reserve’s preferred price gauge rising to a 3.6% annual rate. The personal consumption expenditures price index rose 0.5% from August, up from a 0.3% monthly gain the month before and the largest monthly rise since May.
The annual rate climbed from 3.4% in August, well above the Fed’s 2% target. Rising gasoline prices accounted for much of the acceleration, CNN reported, as a war-driven energy shock kept oil prices above $100 a barrel. The September figures matched economists’ expectations, according to the Wall Street Journal.

Core prices also moved up
Excluding food and energy prices, which tend to swing sharply, the core PCE price index rose 0.3% from August, the same monthly pace as the month before. The annual core rate moved up to 3.1% from 3.0%. Fed officials watch the core measure closely as a read on longer-term price pressures, since it strips out the most volatile categories.
The report also showed households pulling back. Consumer spending rose 0.5% in September, slowing from a 0.9% gain in August, and spending adjusted for inflation was flat from the month before. Personal income grew 0.2%, slowing from 0.3% in August, while inflation-adjusted after-tax income fell 0.3%. The personal saving rate slipped to 3.8%, its lowest level in nearly four years, according to CNN.

What it means for the Fed
The inflation data arrived a day after Fed policymakers left interest rates unchanged, saying they wanted more data before their next move. The central bank raised rates for the first time in three years last month, and the September report gives it more room to raise them again at its December meeting, CNN reported.
“The AI boom and the irrepressible American consumer are keeping the economy from cooling, even as monetary policy becomes more restrictive,” said Olu Sonola, head of U.S. economics at Fitch Ratings. “If the Fed needed another reason to hike in December, this report just gave it one.”
Elizabeth Renter, lead economist at Life360 and a former senior economist at NerdWallet, cautioned that the headline numbers hide uneven strain across households. “It’s easy to talk on the aggregate and say the consumer is really holding the economy aloft, and in many ways they are, but that’s not uniform across households,” Renter said. “Obviously, some households are going to feel a lot more stress from the higher inflation than others.”

The inflation report came alongside a separate Commerce Department report showing the economy grew at a 3.4% annual rate in the third quarter. Together, the two reports form the last major reading on the economy before voters go to the polls Tuesday in midterm elections that will decide control of Congress, with the cost of living a central issue in the campaign.

Reporting based on coverage by CNN and The Wall Street Journal.