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Inflation rises to 3.6% in September as economy grows 3.4%

The Fed's preferred inflation gauge rose 0.5% in September, led by a 9.2% jump in gasoline and energy goods, while third-quarter GDP grew at a 3.4% rate. After inflation, household incomes fell 0.3%.

By US Brief desk · Updated 2026-10-29T12:11:00-07:00

AI-assisted · US Brief desk · Sources listed below

Gas price sign at a Fred Meyer station in Eugene, Oregon, in June 2022

What happened

The Commerce Department's Bureau of Economic Analysis (BEA) said Thursday that the personal consumption expenditures (PCE) price index, the inflation gauge the Federal Reserve targets, rose 0.5% in September and 3.6% from a year earlier. Core PCE, which leaves out food and energy, rose 0.3% for the month and 3.1% for the year. In a separate report, the BEA's first estimate showed the economy grew at a 3.4% annual rate in the third quarter, up from 2.2% in the second.

Against forecasts: CNBC said the 0.5% monthly rise matched the Dow Jones consensus, the annual rate came in 0.1 point below it, and core matched. GDP beat the 3.1% Dow Jones estimate; Fox Business said it also beat LSEG's 3.2% estimate. CNBC called the monthly increase the largest since March, while AP said it was the highest since May.

What pushed prices up: Gasoline and other energy goods rose 9.2% in September, CNBC reported, and energy overall rose 5.4%. AP said oil is above $100 a barrel, up from below $70 before the Iran war, and that shipping, hotel and utility costs also climbed. Services excluding energy and housing, often called supercore, rose 0.4%, and housing rose 0.3%. KPMG noted that higher-education costs rose 1.2%, the most since August 2003, and that core goods rose 0.2%, the fastest since February.

Why it matters

Inflation moved further from the Fed's 2% target, as Fox Business put it, while households' inflation-adjusted incomes fell. That combination makes a December rate hike more likely, which would raise borrowing costs on credit cards, car loans and other debt, and it lands days before voters go to the polls with prices a top concern.

More context

Incomes and spending: Personal income rose 0.2%, short of the 0.3% economists expected, CNBC said. After taxes and inflation, disposable income fell 0.3%. Spending rose 0.5% in dollars but was flat after inflation, and the saving rate was 3.8%. AP said consumers appear to be dipping into savings or turning to credit to keep spending.

Reading the two reports side by side: They cover different windows, which is why they can look like they disagree. In the GDP report, the PCE price index rose at a 2.1% annual rate for July through September, down from 5.0% in the second quarter, and core rose at 2.5%, down from 3.3%. September alone ran hotter, with prices up 0.5% in one month after 0.3% in August. Growth was strong for the quarter, driven by investment, consumer spending and government spending, and AP said AI infrastructure spending helped. But the September numbers show households ending the quarter with falling real incomes and flat real spending.

The Fed and the midterms: The Fed held rates on Oct. 28, and AP said a December hike is now “much more likely.” Fox Business put the probability of a hike at 83%. The Fed next meets Dec. 8–9. The data arrive five days before the Nov. 3 midterms. AP noted that polls give President Trump poor marks on prices and that he campaigned in 2024 on bringing gas below $2 a gallon; the national average is now about $4.25. TD economist Ksenia Bushmeneva told AP that “elevated gasoline prices are keeping headline inflation hot, but underlying pressures are also broadening.”

What's still unknown: Whether gasoline prices ease before the Fed's December meeting; how much the 3.4% growth figure changes, since the BEA will revise it twice; and whether consumers keep spending as real incomes fall. Bushmeneva said that together with higher borrowing costs, these headwinds “are likely to weigh on consumer demand in the coming quarters.”

Sources across the spectrum This story cites right-leaning and left-leaning outlets. Every source is listed below.

7 listed sources

References listed by US Brief; a source count is not a verification score.

Editorial sourcing notes

Sourcing: the BEA's September 2026 personal income and outlays release and its Q3 2026 GDP advance estimate, both released Oct. 29, 2026 at 8:30 a.m. ET (primary documents); CNBC (Jeff Cox, Oct. 29) for consensus forecasts and the energy and services breakdown; Fox Business (Eric Revell, Oct. 29) for LSEG forecasts and December-hike odds; AP (Christopher Rugaber, Oct. 29, via PBS NewsHour) for oil and gas prices, the TD economist's comments and political context; KPMG for supercore, tuition and core-goods details. The GDP figure is an advance estimate and will be revised. Market odds change through the day. This is not investment advice.

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