Consumer prices and spending increased in September, according to the Federal Reserve’s preferred inflation indicator.
The U.S. Core Personal Consumption Expenditures (PCE) price index, which excludes food and energy, rose 0.3% in September, up from 0.1% in August and marking the largest increase since May, per a Bureau of Economic Analysis report released Friday.
Meanwhile, headline PCE – which includes food and energy – rose 0.4% month over month in September, the same percentage increase as in August but above analyst expectations of 0.3% for the month.
Overall, core PCE has eased slightly lower over the last 12 months, falling to 3.7% year over year in September from 5.3% the same month a year earlier, the Commerce Department said.
Although core PCE saw its lowest reading since May 2021, inflation remains stubbornly above the Fed’s 2% target. However, core inflation is heading in the desired direction, according to Jeffrey Roach, chief economist at LPL Financial.
“Although consumer prices rose faster than expected from a month ago, core inflation continues to lose speed, and this report will not likely change the Fed’s view that inflation will slow in the coming months as demand slows,” said Roach, CNBC reported.
“Eventually, spending will moderate after several months of consumers spending more than they earn,” he added.
Despite higher prices in the U.S., consumers weren’t shy about spending their hard-earned money in September. According to Friday’s report, personal spending rose 0.7% in September, up from an increase of 0.4% in August and surpassing the 0.5% market forecast for the month.
During September, spending on services rose by 0.8% or about $96.2 billion, while spending on goods increased by 0.7% or $42.5 billion. Personal income, on the other hand, saw a less substantial increase, rising only 0.3% during the month, which was slightly below consensus estimates.
“Consumers continued to live beyond their means in September, with personal spending growth far outstripping income gains,” said Bloomberg Economists Stuart Paul and Eliza Winger. “We think that dynamic cannot persist much longer.”
This is further exemplified by the amount of money U.S. consumers are spending each month versus the amount they are saving. The savings rate fell to 3.4%, the lowest level of 2023.
Although consumer prices remain steady, data suggests that monetary policy is slowly chipping away at persistent U.S. inflation.