Last snapshot of the US economy before midterms shows stronger growth but higher inflation

US economic growth accelerated last quarter at its fastest pace in over a year; however, rising gas prices helped to lift inflation in September to a four-month high, new data showed Thursday.

The Personal Consumption Expenditures price index rose 0.5% from August, bringing the annual rate of inflation to 3.6% from 3.4%, according to new Commerce Department data, well above the Federal Reserve’s 2% inflation target.

Economists were expecting the PCE price index to increase 0.5% from the prior month, with the annual rate rising to 3.6%, according to FactSet estimates.

Excluding food and gas, categories that tend to be volatile, the core PCE price index rose 0.3% from August, lifting the annual rate to 3.1% from 3%.

The PCE price index is part of the Commerce Department’s monthly Personal Income and Outlays report, which includes comprehensive data on how Americans earn, spend and save.

Americans pumped the brakes on their spending last month, the report also showed. Consumer spending rose 0.5%, slowing from a gain of 0.9% the month before. When adjusting for inflation, consumer spending was flat from the month before.

Consumer spending has held up despite broader economic shocks – including a war-driven spike in energy costs – but it has come partly at the expense of savings as income growth has slowed. Thursday’s report showed that the personal savings rate (savings as a percentage of after-tax income) fell 0.2 percentage points to 3.8%, the lowest rate in nearly four years.

Personal income grew 0.2% from August, slowing from a rate of 0.3%.

Separately on Thursday, the Commerce Department reported that US economic growth accelerated during the third quarter, with gross domestic product expanding at a 3.4% inflation-adjusted annualized rate, a faster pace than the 3.0% rate economists had projected. GDP captures the value of all goods and services across the economy.

The latest reports land a day after Fed policymakers left interest rates unchanged, indicating a desire to consider more economic data before making their next policy move.

Last month, the central bank raised rates for the first time in three years. But the rate increase has yet to slow business investment as companies looked to build up more AI-related infrastructure last quarter.

This story is developing and will be updated.