Federal Reserve’s preferred measure of inflation rose slightly in September
Inflation increased slightly in September after declining in August, new data from the Bureau of Economic Analysis (BEA) showed Thursday.
The personal consumption expenditures (PCE) price index, the preferred inflation metric for the Federal Reserve, rose by 0.5 percent last month and was up 3.6 percent relative to September 2025.
The consumer price index, the Bureau of Labor Statistics’s measure of inflation, reported 3.7 percent annual inflation in September.
The Federal Reserve Bank of Cleveland projected PCE inflation for last month at 0.5 percent month over month and at 3.6 percent relative to September 2025.
Annual inflation, according to the PCE, previously dipped from 3.7 percent in July to 3.4 percent in August.
The price of gas and other energy goods rose by 9.2 percent from August to September, after increasing by 4.4 percent from July to August.
Gasoline and energy costs have risen in six of nine months this year, as the Iran war sparked oil price shocks via the Islamic Republic’s restrictions on shipping in the Strait of Hormuz.
Food and beverage prices, meanwhile, held steady for the second straight month. The cost of food and beverages has not risen by more than 0.5 percent month over month since the start of 2025.
Excluding more volatile energy and food prices, annual inflation in September was 3.1 percent, the BEA reported. In August, core inflation was 3 percent.
Persistent inflation, which has remained above the Fed’s 2 percent target for five and a half years, spurred central bank officials to hike interest rates by a quarter point in mid-September.
On Wednesday, however, the Federal Open Market Committee (FOMC) voted 10-2 to hold rates at a range of 3.75 percent to 4 percent.
After that decision, Fed Chair Kevin Warsh said the weeks leading up to the FOMC’s next meeting in early December will “provide more clarity” on the “appropriate protocol” for the committee regarding monetary policy.
“What we’ve done in this monetary medicine, it’s starting to work some, but there’s no firm conclusions,” Warsh said, referencing the Fed’s rate hike in September. “If we had a firm conclusion about the conduct of monetary policy, we’d announce it to much fanfare today.”
Traders are pricing in an 83.4 percent chance that the Fed will raise rates by a quarter point in December, according to the CME FedWatch tool.
Heather Long, the chief economist at Navy Federal Credit Union, said the latest data from the BEA shows the U.S. “still has an inflation problem” that is “getting worse again.”
She wrote on the social platform X, “Inflation is back near a 3-year high. It’s largely due to war in Iran, but there’s legitimate concern that inflation is spreading beyond energy.”
Higher prices during the Iran war, particularly at the gas pump, pose a political problem for President Trump and the GOP in the midterms.
Democrats are attempting to capitalize on Americans’ frustrations with the cost of living to take control of Congress for the bulk of Trump’s final two years in office.
The president has said that oil prices will dip once he wraps up the war, which hit the eight-month mark this week. Trump initially said the conflict would last less than two months.
“It’s going to be done very soon, and your gasoline prices and your oil is going to come tumbling down,” Trump said last week at a campaign stop in Iowa.
During a rally in Georgia two days later, the president said the country’s oil and gas industry is “making hundreds of billions of dollars” amid the price shock.
Updated at 9:09 a.m. EDT
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