According to Commerce Department figures released on Thursday, the economy expanded more quickly than anticipated in the third quarter while price hikes accelerated in September, pushing inflation well beyond the Federal Reserve’s objective.
The annual inflation rate was 3.6% for the month due to a seasonally adjusted 0.5% increase in the personal consumption expenditures price index. The annual rate was 0.1 percentage points lower than the Dow Jones estimate, but the monthly gain was the biggest since March.
In keeping with the consensus, the core PCE reported readings of 0.3% and 3.1% for food and energy, respectively.
Quick Fact
| Detail | Information |
|---|---|
| Topic | September US Inflation |
| Location | United States |
| Period | Third Quarter and September |
| Headline PCE Inflation | 2.1%, down from 5% |
| Core PCE Inflation | 2.5%, down from 3.3% |
| Gasoline and Energy Goods | Up 9.2% in September |
| Energy Goods and Services | Up 5.4% in September |
| Services Excluding Energy and Housing | Up 0.4% |
| Housing Costs | Up 0.3% |
| Main Concern | Rising energy costs and persistent inflation |
The Commerce Department also stated that the third-quarter GDP remained robust, despite inflation continuing to exceed the Fed’s 2% objective.
The GDP grew at a seasonally adjusted annualized rate of 3.4%, which was much higher than the second quarter’s 2.2% growth and better than the 3.1% projection.
Additionally, consumer expenditure increased by 0.5% in September, somewhat less than the 0.6% advance predicted, while personal income increased by 0.2% as opposed to the 0.3% expectation.
The statistics were released the day after the Fed decided to maintain its target interest rate between 3.75% and 4%.
Strong GDP Growth Amid Persistent Inflation
The Commerce Department said that even while inflation was still higher than the Fed’s 2% target, the third-quarter GDP was still strong.
In comparison to the second quarter’s 2.2% growth and the 3.1% forecast, the GDP rose at a seasonally adjusted annualized rate of 3.4%.
Additionally, personal income climbed by 0.2% in September instead of the anticipated 0.3%, while consumer spending increased by 0.5%, somewhat less than the 0.6% growth.
AI Investment Fuels Growth as Inflation Cools
Higher levels of government and consumer expenditure, together with increased investment from the development of artificial intelligence, have propelled economic growth.
In the third quarter, consumer spending increased at the same rate as the previous quarter—3.8%. A 20.9% increase in equipment spending and an 8.4% increase in intellectual property goods drove a 19.4% increase in gross private domestic investment.
In contrast to a 4.6% increase in the second quarter, real sales to private domestic buyers, a proxy used by Fed policymakers for underlying demand, increased 4.9%.
Energy Costs Drive September Inflation
For the time, there was some positive inflation news: PCE prices increased 2.5% for core and 2.1% for headline, respectively, down from 5% and 3.3% in the second quarter.
A spike in energy prices, which experts worry may be affecting other sectors of the economy, was a major factor in September’s price rises. While energy products and services generally increased by 5.4% throughout the month, gasoline and other energy commodities witnessed a 9.2% increase.
At the same time, housing expenses grew by 0.3% and service prices, excluding energy and housing, increased by 0.4%.
