US headline PCE inflation rose to 3.6% y/y in September, matching expectations, while inflation-adjusted consumer spending was virtually unchanged. Real disposable income fell 0.3%, which raises questions about how long consumption can hold up.
US headline PCE inflation accelerated from 3.4% to 3.6% y/y in September, in line with market expectations. The monthly rate increased from 0.3% to 0.5%, according to ActionForex's reading of the Bureau of Economic Analysis data.
Core inflation edges up while energy weighs on households
Core PCE edged higher from 3.0% to 3.1% y/y, also in line with consensus. However, its monthly rate held steady at 0.3%, so the report shows no fresh monthly acceleration in underlying prices.
ActionForex says the gap between headline and core is consistent with higher energy prices, which continued to weigh on household purchasing power. Gasoline and other energy goods accounted for $45.7B of the $113.1B rise in total spending.
Real spending stalls as income lags
Nominal consumer spending increased 0.5% m/m, slowing from August's 0.9% gain and missing expectations of 0.6%. Inflation-adjusted spending was virtually unchanged after a 0.5% increase in August, which indicates that higher prices absorbed much of the nominal growth.
Income also trailed prices. Personal income rose just 0.2% m/m, below the 0.3% expected, and real disposable income declined 0.3% after no growth in August. The personal saving rate stood at 3.8%.
Strong Q3 GDP meets weaker September momentum
The September data qualify the stronger-than-expected Q3 GDP report, which showed annualized growth accelerating from 2.2% to 3.4%. According to ActionForex, September's stagnation in real consumption suggests household spending momentum weakened toward quarter-end.
The combination of elevated inflation, declining real disposable income and flat real spending raises questions about whether recent consumption strength can be sustained. ActionForex adds that the data point to emerging pressure on purchasing power, not definitive evidence of a broader consumer slowdown.
Source: ActionForex
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