Real U.S. spending flat as PCE inflation hits 3.6%

The U.S. personal consumption expenditures (PCE) price index, the Federal Reserve’s preferred inflation gauge, rose 3.6 per cent in September from a year earlier, while spending adjusted for inflation was almost unchanged, the Bureau of Economic Analysis said Oct. 29.

Americans spent $113.1 billion more in September, a 0.5 per cent gain, but after adjusting for prices that increase was only $2.6 billion, or less than 0.1 per cent, according to the bureau’s Personal Income and Outlays release. Almost all of the rise in spending was higher prices rather than more purchases.

The PCE price index rose 0.5 per cent in September from August, the bureau said. The annual rate was 3.6 per cent, up from 3.4 per cent in August. Excluding food and energy, prices rose 0.3 per cent in the month and 3.1 per cent from a year earlier.

Fox Business reported that the headline and core readings matched what economists surveyed by LSEG expected, and that goods prices were up 3.9 per cent from a year earlier and services prices 3.5 per cent. Bret Kenwell, a U.S. investment analyst at eToro, said both measures reached their highest level since May, “underscoring that inflation remains a stubborn issue.”

Incomes did not keep up. Personal income rose $54.5 billion, or 0.2 per cent, and disposable personal income rose $52.7 billion, or 0.2 per cent, the bureau said. The personal saving rate was 3.8 per cent, which Fox Business reported was down from 4 per cent in August. Reuters reported that real disposable income fell 0.3 per cent in September, as we noted in our report on third-quarter U.S. growth of 3.4 per cent, which the bureau released the same morning.

The data land after the Fed held its policy rate at 3.75 per cent to 4 per cent on Oct. 28, on a 10-2 vote in which two members wanted a quarter-point increase, as we reported in our story on the decision. The next meeting is Dec. 9.

Fox Business reported that the CME FedWatch tool put the chance of a quarter-point hike in December at 79.6 per cent, down from 84.2 per cent a day earlier. James McCann, senior economist for investment strategy at Edward Jones, said the Fed’s tone and the dissents pointed to “a return to tightening in December and potentially one more interest rate hike in 2027.” That is his view, not the Fed’s stated plan.

For Canadians, the same pressure is visible at home. The Bank of Canada raised its policy rate to 2.5 per cent on Oct. 28, and Statistics Canada reported that annual inflation reached 3.1 per cent in September, driven by a 27.8 per cent jump in gasoline prices. Variable-rate mortgages and lines of credit in Canada follow the Bank of Canada’s rate rather than the Fed’s, but U.S. rate moves still influence the Canadian dollar and cross-border borrowing costs, as we explained in our preview of the two decisions.

The bureau will publish October income and spending data on Nov. 25 at 8:30 a.m. EST.

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Sources: U.S. Bureau of Economic Analysis; Fox Business; Reuters, via our earlier report.