Fed’s Favorite Inflation Indicator Surges In September As Soaring Energy Costs Drags Americans’ Savings Rate To 4-Year Lows

Following the hot CPI and PPI (and the internals), this morning’s PCE should not provide too many surprises with expectations for the headline price Index to rise a significant 0.5% MoM in September (accelerating notably after deflating for the first time since COVID in June).

And sure enough, headline PCE rose 0.5% as expected, pulling the price index up 3.6% YoY – highest since May…

The (old) Fed’s favorite inflation indicator – Core PCE (a measure of price changes in consumer goods and services that excludes volatile food and energy costs) – printed in line with expectations (+0.3% MoM and +3.1% YoY), a very slight uptick…

The sudden resurgence in crude prices did not help at all, smashing PCE Energy to record highs!!

SuperCore PCE (Services ex-Shelter) surged to its highest YoY since Dec 2024…

Interestingly, and more problematically for The Fed, Acylical inflation is now hotter than Cyclical…

In other words, inflation is becoming embedded…which maybe why Services costs are making up such a huge proportion of overall costs…

And that is evident in the income and spending data, which both disappointed (Income +0.2% vs +0.5% exp and Spending +0.5% vs +0.6% exp

)…

Spending is accelerating while wage growth is decelerating…

And that dragged Americans’ savings rate tumbling to its lowest since Oct 2022…

This is not good news… at all!