Research
October 29, 2026
PCE Deflator
Personal spending rose solidly in September despite stubborn inflation and dampened sentiment
The Personal Consumption Expenditures (PCE) deflator, the Federal Reserve’s preferred inflation measure, rose 0.5% in September, up from 0.3% in August and the fastest monthly increase since May. The acceleration was driven largely by energy prices, with gasoline and other energy costs surging 9.2% in September after rising 4.4% in August. On a year-over-year basis, energy prices were up 35.4%.
By contrast, prices for food and beverages purchased for off-premises consumption were unchanged for the second consecutive month in September and rose just 1.5% over the past year.
Overall inflation remained elevated. The headline PCE deflator increased 3.6% year over year in September, up from 3.4% in each of the previous two months and the highest reading since May. Core PCE inflation, which excludes food and energy, rose 0.3% for the second straight month. On a 12-month basis, core inflation edged up to 3.1% from 3.0% in each of the previous three months and has averaged 3.0% so far in 2026.
Inflation therefore remains well above the Federal Reserve’s 2% target, with elevated energy costs adding uncertainty to the outlook. Persistent price pressures contributed to the Federal Open Market Committee’s decision to raise short-term interest rates in September. Although the Federal Reserve left rates unchanged at its October meeting, policymakers have signaled that additional rate increases remain possible, including as early as December, as they seek to return inflation sustainably to target.
Consumer spending continued to grow solidly in September, with personal consumption expenditures rising 0.5% following the 0.9% gain seen in August. Household demand has remained remarkably resilient despite elevated gasoline prices, weaker consumer confidence, and broader economic uncertainty, with higher tax refunds likely providing some support earlier in the year. Spending on foodservices and accommodations outpaced overall consumption, increasing 1.0% in September, building on the 1.6% gain from August.
Over the past 12 months, total personal consumption expenditures rose 6.3%, highlighting the continued strength of consumer demand. Spending on foodservices and accommodations increased 6.5% over that period, suggesting consumers have largely maintained their willingness to dine out and travel despite ongoing affordability pressures.
Even so, a sizable portion of spending growth continues to reflect higher prices rather than increased purchasing activity. After adjusting for inflation, real personal consumption was up 2.5% from one year earlier but was unchanged in September. Real spending on foodservices and accommodations rose 0.5% for the month, with 2.9% growth year-over-year.
Personal income rose 0.2% in September, edging down from 0.2% in July and August. Overall, personal income grew by 4.1% over the past 12 months. Wages, which have been a large contributor to the economy’s resilience, also increased 0.2% in September, with 4.1% growth year-over-year.
With spending well outpacing income growth, the personal savings rate decreased from 4.0% in August to 3.8% in September, the lowest since October 2022. Overall, the savings rates in the post‑pandemic period remain well below historical norms. Prior to the pandemic, the savings rate averaged 6.5% from 2017 to 2019, compared with an average of just 4.6% year to date. This suggests that consumers are dipping into their savings to finance their spending.
By contrast, prices for food and beverages purchased for off-premises consumption were unchanged for the second consecutive month in September and rose just 1.5% over the past year.
Overall inflation remained elevated. The headline PCE deflator increased 3.6% year over year in September, up from 3.4% in each of the previous two months and the highest reading since May. Core PCE inflation, which excludes food and energy, rose 0.3% for the second straight month. On a 12-month basis, core inflation edged up to 3.1% from 3.0% in each of the previous three months and has averaged 3.0% so far in 2026.
Inflation therefore remains well above the Federal Reserve’s 2% target, with elevated energy costs adding uncertainty to the outlook. Persistent price pressures contributed to the Federal Open Market Committee’s decision to raise short-term interest rates in September. Although the Federal Reserve left rates unchanged at its October meeting, policymakers have signaled that additional rate increases remain possible, including as early as December, as they seek to return inflation sustainably to target.
Consumer spending continued to grow solidly in September, with personal consumption expenditures rising 0.5% following the 0.9% gain seen in August. Household demand has remained remarkably resilient despite elevated gasoline prices, weaker consumer confidence, and broader economic uncertainty, with higher tax refunds likely providing some support earlier in the year. Spending on foodservices and accommodations outpaced overall consumption, increasing 1.0% in September, building on the 1.6% gain from August.
Over the past 12 months, total personal consumption expenditures rose 6.3%, highlighting the continued strength of consumer demand. Spending on foodservices and accommodations increased 6.5% over that period, suggesting consumers have largely maintained their willingness to dine out and travel despite ongoing affordability pressures.
Even so, a sizable portion of spending growth continues to reflect higher prices rather than increased purchasing activity. After adjusting for inflation, real personal consumption was up 2.5% from one year earlier but was unchanged in September. Real spending on foodservices and accommodations rose 0.5% for the month, with 2.9% growth year-over-year.
With spending well outpacing income growth, the personal savings rate decreased from 4.0% in August to 3.8% in September, the lowest since October 2022. Overall, the savings rates in the post‑pandemic period remain well below historical norms. Prior to the pandemic, the savings rate averaged 6.5% from 2017 to 2019, compared with an average of just 4.6% year to date. This suggests that consumers are dipping into their savings to finance their spending.