Research
January 22, 2026
PCE Deflator
Inflation Holds Steady as Consumers Spent Solidly in October and November
The Personal Consumption Expenditures (PCE) deflator—the Federal Reserve’s preferred inflation gauge—rose 0.2% in October and November, slowing a bit after increasing by 0.3% in August and September. Food prices were unchanged in both October and November, easing from solid gains of 0.5% in August and 0.4% in September. On the other hand, energy costs have continued to seesaw from month to month, declining 0.7% in October before jumping 1.9% in November. Core PCE, which excludes food and energy, advanced 0.2% for the fifth straight month.
Year-over-year, the headline PCE deflator increased to 2.8% in November, up from 2.7% in October. Core inflation data were similar, also rising 2.8% over the past 12 months in November. Over the past 19 months—since May 2024—core inflation has averaged 2.8%, underscoring how earlier progress in easing price pressures has largely stalled. Still, both headline and core inflation remain well below their pandemic-era peaks of 7.1% (June 2022) and 5.5% (September 2022), though the Fed’s 2% target remains elusive.
For now, employment concerns are overshadowing inflation risks. The Federal Reserve is actively weighing further rate cuts while balancing economic resilience against still-elevated inflation. The Federal Open Market Committee reduced the federal funds rate at its December 8–9 meeting for the third straight meeting, but it is not expected to make an additional cut at its upcoming January 28–29 meeting, particularly as it awaits new data. Still, there are additional cuts predicted in 2026, including possibly at the March 17–18 meeting.
Beyond prices, personal consumption expenditures rose 0.5% in October and November, continuing to increase solidly. Spending on foodservices and accommodations edged down 0.1% in October but rebounded by 0.5% in November. Over the past year, total personal spending has grown a healthy 5.4%, with expenditures on foodservices and accommodations up 4.2% since November 2024, signaling surprising resilience in consumer demand despite persistent headwinds.
Part of this growth reflects higher prices, even as real spending continues to advance at a more modest pace. Inflation-adjusted personal consumption increased 0.3% in October and November, with 2.6% growth year-over-year. Real spending on foodservices and accommodations rose 1.6% over the past year. Even after accounting for inflation, consumers are allocating more toward dining and travel, a positive sign for those sectors, albeit at a softer pace than many would prefer.
Personal income rose 0.1% in October and 0.3% in November, increasing for the sixth straight month but slower than the 0.4% pace seen in September. Personal income grew 4.3% over the past 12 months. Solid (but moderating) wage growth has been a large contributor to the economy’s resilience.
With spending growth outpacing income gains, the personal savings rate fell to 3.5% in November, its lowest level since October 2022. Notably, savings rates in the post‑pandemic period remain well below historical norms. Prior to the pandemic, the savings rate averaged 6.5% from 2017 to 2019, compared with an average of just 5.0% since the start of 2023. Moreover, savings over the past seven months have consistently run below that already‑reduced pace.
Year-over-year, the headline PCE deflator increased to 2.8% in November, up from 2.7% in October. Core inflation data were similar, also rising 2.8% over the past 12 months in November. Over the past 19 months—since May 2024—core inflation has averaged 2.8%, underscoring how earlier progress in easing price pressures has largely stalled. Still, both headline and core inflation remain well below their pandemic-era peaks of 7.1% (June 2022) and 5.5% (September 2022), though the Fed’s 2% target remains elusive.
For now, employment concerns are overshadowing inflation risks. The Federal Reserve is actively weighing further rate cuts while balancing economic resilience against still-elevated inflation. The Federal Open Market Committee reduced the federal funds rate at its December 8–9 meeting for the third straight meeting, but it is not expected to make an additional cut at its upcoming January 28–29 meeting, particularly as it awaits new data. Still, there are additional cuts predicted in 2026, including possibly at the March 17–18 meeting.
Beyond prices, personal consumption expenditures rose 0.5% in October and November, continuing to increase solidly. Spending on foodservices and accommodations edged down 0.1% in October but rebounded by 0.5% in November. Over the past year, total personal spending has grown a healthy 5.4%, with expenditures on foodservices and accommodations up 4.2% since November 2024, signaling surprising resilience in consumer demand despite persistent headwinds.
Part of this growth reflects higher prices, even as real spending continues to advance at a more modest pace. Inflation-adjusted personal consumption increased 0.3% in October and November, with 2.6% growth year-over-year. Real spending on foodservices and accommodations rose 1.6% over the past year. Even after accounting for inflation, consumers are allocating more toward dining and travel, a positive sign for those sectors, albeit at a softer pace than many would prefer.
With spending growth outpacing income gains, the personal savings rate fell to 3.5% in November, its lowest level since October 2022. Notably, savings rates in the post‑pandemic period remain well below historical norms. Prior to the pandemic, the savings rate averaged 6.5% from 2017 to 2019, compared with an average of just 5.0% since the start of 2023. Moreover, savings over the past seven months have consistently run below that already‑reduced pace.