US Inflation Hits 3.6% as Spending Grows

American consumers continued spending in September, but their incomes struggled to keep pace with rising prices.

New figures from the US Bureau of Economic Analysis (BEA) showed consumer spending increased 0.5%, while personal income grew just 0.2%, raising concerns about how long households can sustain their purchasing habits.

The report also showed annual PCE inflation climbing to 3.6%, adding pressure on the Federal Reserve as it considers its next interest rate decision.

Americans Are Spending More, but Buying Little Extra

Personal consumption expenditures rose $113.1 billion in September, compared with a $54.5 billion increase in personal income. Services accounted for most of the spending growth, adding $78.1 billion, while goods purchases increased by $35.1 billion.

Yet the inflation-adjusted figures tell a different tale. Real consumer spending rose by less than 0.1%, indicating that much of the increase reflected higher prices rather than greater consumption.

Household purchasing power also weakened. Although disposable income increased by $52.7 billion, or 0.2%, it fell 0.3% after inflation. The personal saving rate stood at 3.8%, with savings totaling $911.1 billion.

Inflation Gives the Fed Another Reason to Hold Firm

The headline PCE price index climbed 0.5% in September and 3.6% annually. Core PCE, which excludes food and energy, increased 0.3% on the month and 3.1% from a year earlier, remaining well above the Fed's 2% target.

Higher energy costs are adding to the challenge by raising transportation and production expenses, potentially pushing prices further upward.

The combination of resilient spending and weakening purchasing power leaves policymakers facing a difficult balance. Persistent inflation could strengthen the case for keeping interest rates high or raising them further, supporting the dollar and Treasury yields while putting pressure on gold and equities.

With household incomes already trailing spending growth, upcoming employment and consumption figures will help determine how much longer American consumers can maintain their current pace.

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