Core Inflation Slips to 2.8% in Delayed September Report

The Commerce Department’s delayed September report shows core PCE inflation rising 2.8% annually-slightly lower than expected-giving the Federal Reserve more room to cut interest rates

sarah

Dec 5, 2025 - 21:13

Core Inflation Slips to 2.8% in Delayed September Report

The Commerce Department said in a report on Friday that a key measure of inflation was lower than expected in September, delayed by the government shutdown, giving the Federal Reserve more green light to lower interest rates.

The core personal consumption expenditure price index, which excludes volatile food and energy prices, showed a 0.2% monthly increase, while the annual rate was 2.8%. The monthly rate was in line with the Dow Jones consensus, but the annual level was 0.1 percentage point lower. The core annual rate fell from 2.9% in August.

In addition, according to the department's Bureau of Economic Analysis, headline PCE rose 0.3% for the month, bringing the annual inflation rate to 2.8%. Both readings were in line with expectations, although the annual rate was 0.1 percentage point higher than in August.

Federal Reserve officials use the PCE price index as their main policy tool for tracking inflation. While officials monitor both measures, they generally consider core inflation a better indicator of long-term inflation trends.

Goods prices rose 0.5% this month as President Donald Trump's tariffs continued to impact the economy. Services prices rose only 0.2%. Food prices rose 0.4%, while energy prices rose 1.7%.

The report also showed that the personal savings rate remained unchanged at 4.7% from August.

The report was delayed for several weeks due to the government shutdown, which halted all data collection and economic reporting.

In addition to inflation data, the report provided information on income and spending.

Personal income rose 0.4% this month, while spending increased 0.3%. Income was 0.1 percentage point higher than expected, while spending was 0.1 percentage point lower than expected.

Stocks rose following this release as traders expect the Fed to cut interest rates by a quarter percentage point when it announces its rate decision on Wednesday.

Although the September reading is the last reading, it is the Fed's final price reading before its monetary policy meeting next week. Futures market pricing suggests it is almost certain that the rate-setting Federal Open Market Committee will approve another quarter percentage point rate cut when its meeting concludes on Wednesday.

However, policymakers are strangely divided on what the next steps should be for rates.

One faction of the FOMC supports further rate cuts to prevent further weakness in the labor market, while another sees a persistent threat from inflation that would require keeping rates on hold.

Recent labor market indicators show a slower pace of hiring, with some private data points indicating rising levels of layoffs. However, Labor Department data showed a decline in initial unemployment benefit claims last week.

A separate economic report on Friday showed consumer sentiment slightly better than expected in early December.

The University of Michigan's consumer sentiment survey came in at 53.3, up 4.5% from November and better than Wall Street's estimate of 52. Inflation expectations also fell, with one-year estimates falling to 4.1% and five-year estimates to 3.2%, both their lowest levels since January.