Bad newsUS Inflation Climbs to 3.6% as Incomes Fall and Fed Hike Odds Grow
The Commerce Department's preferred price gauge rose 0.5% in September and 3.6% on the year, while after-tax, inflation-adjusted incomes fell 0.3%. Gasoline drove much of it, and the AP says a December rate rise is now likelier.
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Prices rose faster in September, and household incomes did not keep up. The Bureau of Economic Analysis, part of the Commerce Department, reported on Thursday that its personal consumption expenditures (PCE) price index rose 0.5% from August and 3.6% from September 2025. Core PCE, which strips out food and energy, rose 0.3% on the month and 3.1% on the year.
The Associated Press reports that the annual rate was 3.4% in August and the monthly gain was 0.3%, so September was the largest monthly increase since May. Core inflation had been 3.0% on the year in August. The PCE index is the measure the Federal Reserve watches most closely.
Gasoline did much of the damage. The AP says oil is above $100 a barrel, up from below $70 before the Iran war, and that gasoline averages about $4.25 a gallon across the US. Shipping, hotel rooms and utilities also rose quickly from August to September, which the AP reads as a sign that price pressure is spreading beyond fuel. TD economist Ksenia Bushmeneva told the AP that underlying pressures are broadening.
Personal income rose 0.2%, about $54.5 billion, according to the BEA. Disposable income also rose 0.2%. With prices up 0.5%, the AP reports that after-tax, inflation-adjusted incomes fell 0.3% in the month. Consumer spending rose 0.5% in dollar terms, but real spending was nearly flat, a gain of about $2.6 billion.
Personal saving totalled $911.1 billion, a saving rate of 3.8% of disposable income. The AP says consumers appear to be drawing on savings or credit to keep spending, which helped lift third-quarter GDP growth to a 3.4% annual rate from 2.2% in the second quarter. Consumer spending grew at a 3.8% annual rate in the quarter.
The December test
The Fed held its key interest rate on Wednesday, the day before the release. The AP says a rise at its December meeting is now much more likely, which would raise borrowing costs across the economy. The next BEA release is due on 25 November. The sources do not say how long the oil price is expected to stay above $100, and that is the main variable for the next reading.
