PCE Deflator
In September, the personal consumption expenditures (PCE) deflator—the Federal Reserve’s preferred inflation gauge—ticked up by 0.2%, accelerating slightly from a 0.1% rise in August. Food prices saw a sharper increase, climbing 0.4% after a modest 0.1% gain the previous month. Meanwhile, energy costs dropped for the second consecutive month, down by 2.0%, helping to temper broader inflationary pressures. Excluding the more volatile food and energy sectors, the core PCE deflator increased by 0.3%, marking its fastest growth since March.
Year-over-year, the PCE deflator rose by 2.1% in September, a slight decline from 2.3% in August and the lowest rate since February 2021. Core inflation, however, held steady at 2.7% annually for the third consecutive month (and the fourth time in five months), underscoring that while inflation has notably eased since the highs of recent years—when the PCE deflator hit 7.1% in June 2022 and core PCE peaked at 5.5% in September 2022—core inflation remains persistently elevated. This ongoing “stickiness” suggests that some areas of price growth are proving more resistant to cooling than desired.
This adds a layer of complexity to monetary policy decisions. Nonetheless, the Federal Reserve is still anticipated to reduce short-term interest rates by 25 basis points at its upcoming meeting on November 6–7, following the 50-basis-point cut implemented at the prior Federal Open Market Committee (FOMC) meeting on September 17–18. Further, the FOMC is expected to implement an additional 25-basis-point cut at its December 17–18 meeting, aiming for a cumulative 100-basis-point reduction over the course of 2024, subject to incoming data.
The latest report highlights that personal consumption expenditures rose by 0.5% in September, following strong gains of 0.6% in July and 0.3% in August. Spending in foodservices and accommodations also saw robust growth, climbing 0.8% for the second consecutive month. Over the past year, personal spending has increased by 5.3%, with spending on foodservices and accommodations up 4.5% since September 2023. These figures underscore the role of consumer spending in supporting the U.S. economy, providing resilience even amid ongoing challenges.
However, some of this growth reflects higher prices. Adjusted for inflation, real personal consumption expenditures have increased by a solid 3.1% year-over-year in chained 2017 dollars, while inflation-adjusted spending on foodservices and accommodations rose by a more modest 1.7% year-over-year.
Personal incomes rose 0.3% in September, up from 0.2% in August. Wages and salaries increased by 0.5% for the month. Over the past 12 months, wages and salaries have increased 6.4%, or 6.2% year-over-year in the service-producing industries. The personal savings rate ticked down for the third consecutive month to 4.6% in September, the weakest reading since December.