The Federal Reserve’s preferred inflation gauge accelerated in September after holding at 3.0% for three consecutive months, complicating the Fed’s path to its 2% target. Consumer spending continued to be pushed up by elevated energy prices rather than income growth, driving the personal saving rate to the lowest level in nearly four years.

The headline Personal Consumption Expenditure (PCE) Price Index increased 3.6% in September from a year ago, the fastest pace since May, according to the Bureau of Economic Analysis. The “core” PCE price index, which excludes food and energy, rose 3.1% over the past twelve months, following a 3.0% increase last month. Core PCE has remained at or above 3.0% since the start of the Iran conflict, suggesting inflation pressure persists even excluding volatile energy prices.

Consumer spending rose 0.5% in September, while real spending, adjusted to remove inflation, remained unchanged. Meanwhile, personal income rose 0.2% in September. This growth was led by increases in compensation and government social benefits. Real disposable income—income adjusted for taxes and inflation—fell 0.3%. On a year-over-year basis, personal income was 4.1% higher, and real (inflation-adjusted) disposable income was up 1.0%.

With spending growth outpacing income growth, the personal saving rate fell to 3.8% in September, the lowest level since November 2022. The personal saving rate has been on a downward trend since the start of this year, with the exception of July.