Inflation Report Breakdown: Latest CPI and PCE Numbers Explained

October 29, 2026 | ATN Trade & Finance

Two inflation readings landed in the past two weeks that together give the clearest picture yet of where US prices stand heading into the Federal Reserve's final two policy meetings of the year. The Consumer Price Index for September came in on October 14. The Personal Consumption Expenditures price index for September — the Fed's preferred gauge — was released this morning. Both came in above the prior month, both beat or matched consensus, and together they answer a question that had been in play since the Fed's mid-September rate hike: is the tightening cycle finished? Based on what the data says this morning, the answer is no.

September CPI: 3.7%, Energy Drove the Jump

The Bureau of Labor Statistics reported that the headline Consumer Price Index rose 0.6% in September from August, and 3.7% year over year — up from 3.4% in August and above the 3.6% economist consensus. It was the highest annual rate since the spring.

Gasoline was responsible for more than half of the monthly increase, rising 9.1% in September alone, with energy overall up 5.2% for the month after a 2.1% rise in August. Gasoline prices on a 12-month basis were up 34.2%, reflecting the spike in crude driven partly by Middle East tensions that persisted through much of the third quarter.

Stripping out food and energy, core CPI rose 0.3% month over month — the same pace as August — and 2.6% year over year, up from 2.4% the month before. Core services climbed 3.1% on an annual basis. Shelter continued to put upward pressure on core, with owners' equivalent rent up 3.3% year over year and rents for primary residences up 2.8%. Recreation, used cars and trucks, medical care, and airline fares all contributed positively. Food was unchanged. The so-called supercore measure — services excluding shelter, which Fed officials have flagged as a key signal of underlying demand — rose 3.2% year over year and 0.3% month over month, matching August's pace.

September PCE: 3.6% Headline, 3.1% Core

This morning's Personal Income and Outlays report from the Bureau of Economic Analysis provided the reading that Fed officials will weight most heavily. Headline PCE inflation came in at 3.6% year over year in September — up from 3.4% in August and matching economist expectations. Month over month, it rose 0.5%, above August's 0.3%. Core PCE, which excludes food and energy, ran at 3.1% annually — up from 3.0% in August — and 0.3% month over month, faster than August's 0.2%.

Category breakdown: goods prices rose 3.9% year over year, services 3.5%. Capital Economics cited an "energy-driven inflationary impulse" as the proximate cause of the headline acceleration, while RSM flagged higher oil prices as the primary mechanism. But the more notable detail for policymakers is that core services excluding housing — a category Chair Kevin Warsh and his predecessors have pointed to as the most durable component of inflation — rose nearly 0.4% in the month, suggesting that price pressure is not limited to energy.

The personal savings rate fell to 3.8% in September, down from 4.0% in August and well below the 6.2% peak of April 2025. Consumer spending grew 3.8% in the third quarter, contributing to a GDP print of 3.4% annualized — a result that signals an economy not visibly slowing under the weight of existing rate levels.

What the Two Reports Say Together

CPI and PCE use different methodologies and different basket weights — housing carries more weight in CPI, and PCE adjusts for substitution effects that CPI does not — so they will always produce slightly different readings. What matters is the direction both are pointing: up in September, for the second month running on an annual basis, with core measures still running above 2.6% and headline readings above 3.5%.

The Fed raised rates in mid-September — its first hike in three years — and held at the October 28 meeting by a 10-2 vote, with two dissents favoring an immediate increase. Chair Warsh described the economy as "expanding at a strong pace" and said inflation "remains elevated." CME FedWatch currently prices a December hike at 79.6% probability, which would bring the federal funds rate to a 4.00%–4.25% target range. Analysts at Edward Jones expect at least one more hike in 2027 after that. Kiplinger's economists are projecting headline CPI to end 2026 at 4.0% and core at 2.7%.

What This Means: For supply chain and trade operators, inflation that re-accelerates from energy and spreads into services is a different problem from inflation driven by pandemic-era goods shortages. Energy costs affect freight rates, logistics budgets, and the landed cost of imported goods directly. Services inflation — particularly the shelter and core services components that are still running above 3% — affects the cost of warehousing, labor, and the business services that underpin trade operations. With December rate hike odds above 80% and the savings rate approaching three-year lows, consumer demand is likely to remain firm through year-end even as credit costs rise — meaning that input cost pressure on the supply chain is unlikely to ease on its own before 2027.

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Inflation Report Breakdown: Latest CPI and PCE Numbers Explained

Inflation Report Breakdown: Latest CPI and PCE Numbers Explained

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