US inflation ticked higher in September. New data shows consumers remain under pressure from high prices. The reports arrived just before the Federal Reserve‘s next rate decision.
The personal consumption expenditures price index is the Fed’s preferred gauge. It rose to 2.8% annually in September. This was up from 2.7% the previous month, according to the Bureau of Economic Analysis.
Mixed Signals Complicate the Economic Picture
The core PCE index, excluding food and energy, held at 2.8%. This was a slight improvement from August’s 2.9% reading. The data was delayed by a government shutdown.
Notable price increases hit durable goods like cars and furniture. These categories rose 1.4% from a year ago. This continues to strain household budgets directly.
Separate data from the University of Michigan showed a small rise in consumer sentiment. The index moved to 53.3 in December from 51.0 in November. However, the overall outlook remains somber.
Survey Director Joanne Hsu noted a diminished outlook for personal income. Labor market expectations also stayed relatively dismal. Consumers consistently cite the high burden of prices, she said.
Federal Reserve Walks a Tightrope on Policy
The Fed has cut interest rates at its last two meetings. This came after signs of a slowing employment market. Officials remain wary of inflation risks, including potential impacts from tariffs.
EY-Parthenon Chief Economist Gregory Daco expects another rate cut next week. He predicted Fed Chair Jerome Powell would persuade hesitant policymakers. Further easing may pause without a material economic weakening.
Daco noted a “gradual and uneven” pass-through of tariff costs on goods. This is exacerbating an affordability crisis, he explained. Business buffers like pre-tariff inventories are slowly eroding.
This dynamic could fuel rising inflation in late 2025 and early 2026. It would further complicate the consumer outlook. Softening labor-market dynamics add another layer of challenge.
The latest inflation data confirms the financial pressure on American households is not relenting. While the Federal Reserve is expected to act, the path forward for consumer budgets remains fraught with uncertainty. The persistent strain from inflation continues to define the economic experience for millions.
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Q1: What is the PCE price index?
The Personal Consumption Expenditures price index is the Federal Reserve’s preferred inflation measure. It tracks changes in the prices of goods and services consumed by households. It is considered broader than the Consumer Price Index.
Q2: Did inflation go up or down in September?
The headline PCE index rose to 2.8% year-over-year, up from 2.7% in August. However, the core index, which excludes volatile food and energy prices, held steady at 2.8%.
Q3: How are consumers feeling about the economy?
Consumer sentiment improved slightly in December but remains low historically. The University of Michigan survey shows people are still deeply concerned about high prices and have a gloomy outlook for their personal income.
Q4: What is the Fed expected to do next?
Analysts, like those at EY-Parthenon, predict the Fed will cut interest rates again at its upcoming meeting. This would be a third consecutive cut aimed at managing economic risks, though future cuts may be paused.
Q5: What is the main risk to future inflation?
Economists point to the potential for existing tariffs to push prices higher. As businesses deplete inventories bought before tariffs, they may pass more costs to consumers, reigniting inflationary pressures.
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