- A delayed federal report finds overall U.S. inflation ticked up slightly in September.
- Gas and grocery price jumps were among the main drivers of the increase.
- Consumer spending was flat when adjusted for inflation.
A shutdown-delayed federal report released Friday found overall U.S. inflation crept up slightly in September, driven mostly by rising gas and grocery prices as consumer spending cooled.
The Labor Department’s Personal Consumption Expenditure report, originally scheduled for release in October, shows headline PCE prices rose 0.3% on a monthly basis and the annual inflation rate came in at 2.8%. The annual rate was up 0.1% from August, according to the department’s Bureau of Economic Analysis.
The core PCE inflation metric, which strips out volatile food and energy prices and is the Federal Reserve’s preferred measure of consumer price fluctuations, moved up 0.2% on a monthly basis in September, while the annual rate was 2.8%, down 0.1% from August.
The report also finds that consumer spending rose 0.3% from August to September but was essentially flat when adjusted for inflation.
A sour economy?
The new inflation data follows other independent economic reporting earlier this week including an ADP analysis that found businesses cut employee rolls by 32,000 positions in November. A breakdown released by business consulting firm Challenger, Gray & Christmas on Thursday showed U.S. companies have laid off over 1.1 million workers so far this year, the highest rate since 2020 for the same period.
“Based on this and recent private sector data, one cannot avoid the fact that the condition of the U.S. household down market is sour at best and weak at worst,” Joe Brusuelas, RSM US chief economist, wrote in a note Friday to investors per a report from CNN. “Unless one lives in the upper spur of the K-shaped economy, it is easy to get the idea that at best down-market households are treading water at this time.”
The term K-shaped economy refers to conditions in which top-tier earners are doing better from an economic standpoint while middle and lower-level earners are experiencing worsening financial struggles.
Overall prices on consumer goods were up 0.5% on a monthly basis in September, according to the report, as the cost of services increased by 0.2%. Energy prices were up 1.7% from August to September and food costs increased by 0.4%.
How will the Fed react?
While information in Friday’s PCE report is months old, it represents the last federal data that the Federal Reserve will see before its final policy meeting of the year next week.
The monetary body has made two consecutive .25% interest rate cuts at its previous meetings in an effort to bolster a lagging U.S. jobs market, but it’s unclear how the rate-setting Open Market Committee will view the new inflation data.
Following the conclusion of the Fed’s last meeting on Oct. 29, chairman Jerome Powell told reporters “there is no risk-free path forward.”
And that’s thanks to current economic conditions in which both sides of the Fed’s dual mandate of maximum employment and price stability are under fire, with inflation on the rise alongside a softening employment market.
Generally speaking, interest rate reductions help spur economic activity by reducing the cost of debt which can promote business activities like investment and hiring. Rate hikes, which increase the cost of consumer and commercial debt, quell spending and, theoretically, help slow down inflationary price increases.
The Federal Reserve’s final meeting of 2025 is scheduled for Dec. 9-10.