Figure 8. Percent Change in PCE Price Index Source: Bureau of Economic Analysis)
The weakness in inflation-adjusted income and spending is expected to weigh on fourth-quarter GDP, especially with the government shutdown contributing an estimated 12 percent drag on growth. At the same time, inflation remained sticky. The Personal Consumption Expenditures PCE Price Index, the Federal Reserveʼs preferred inflation measure, rose 0.3 percent in September. Both headline and core PCE increased 2.8 percent from a year earlier, with core inflation rising 0.2 percent on the month, matching August and in line with forecasts. The inflation backdrop is becoming more complex. Goods inflation, which had eased significantly since 2022, has reaccelerated since the spring. Prices for durable goods rose 0.9 percent, non-durables increased 1.7 percent, and services inflation, still driven heavily by upper-income spending, advanced 3.4 percent over the past year. Food prices climbed 2.4 percent and energy costs were up 2.7 percent. These dynamics reinforce the view that overall inflation is cooling but not quickly enough to bring the Federal Reserve closer to its two percent target.