Prices Rose 3.6% Over the Past Year in September, and Inflation-Adjusted Take-Home Pay Fell 0.3% in One Month

Consumer prices rose 0.5% in September and 3.6% from a year earlier by the measure the Federal Reserve prefers, while Americans' inflation-adjusted after-tax income fell 0.3% in the month, the Bureau of Economic Analysis reported Thursday.

The personal consumption expenditures price index excluding food and energy, known as core PCE, rose 0.3% in September and 3.1% from a year earlier, according to the bureau's Personal Income and Outlays report.

The headline and core numbers moved apart. In August, both the overall and core PCE indexes rose 0.3% for the month. In September, the overall index rose 0.5% while core held at 0.3%, which indicates that food and energy, the two categories excluded from core, pushed prices up faster than the rest of the basket.

Personal income rose $54.5 billion, or 0.2%, in September. Disposable personal income, which is income after taxes, rose $52.7 billion, also 0.2%. But after adjusting for prices, real disposable income fell 0.3%, after showing no change in August, according to the bureau's table.

Spending rose faster than income. Personal consumption expenditures increased $113.1 billion, or 0.5%, including $35.1 billion more on goods and $78.1 billion more on services. Adjusted for inflation, though, real spending rose just $2.6 billion, less than 0.1%, after a 0.5% gain in August. In other words, nearly all of the increase in dollars spent in September reflected higher prices rather than people buying more.

Services made up more than two-thirds of the September increase in current-dollar spending, $78.1 billion of $113.1 billion, according to the release.

With spending outpacing income, the saving rate was 3.8%, the bureau said. Personal saving, the amount left over after spending, interest and transfer payments, was $911.1 billion at an annual rate.

The increase in income primarily reflected higher compensation and government social benefits, according to the release. Within compensation, private wages and salaries led the gain, based on Bureau of Labor Statistics payroll data. The increase in government social benefits was led by Medicare.

The bureau also revised its estimates for July and August to reflect revised BLS payroll data. The revision to personal interest income was led by monetary interest, based on newly available data from the Bureau of the Fiscal Service.

Month by month, the third quarter shows the shift. Real disposable income was flat in August and fell 0.3% in September. Real spending rose 0.5% in August and was flat in September. Current-dollar spending rose 0.9% in August and 0.5% in September. The pattern suggests households kept spending into late summer and then pulled back as prices rose faster in September.

The PCE price index is the inflation measure the Federal Reserve uses for its 2% target. Both the overall reading of 3.6% and the core reading of 3.1% are well above that goal, which matters for interest rates on mortgages, car loans and credit cards. The report itself does not comment on monetary policy.

The saving rate is calculated as personal saving divided by disposable income. A lower saving rate can mean households are dipping into savings or borrowing to keep up spending, though the bureau's release does not break down where the money is coming from.

A separate release Friday from the Bureau of Labor Statistics showed private-sector wages and salaries rose 3.1% over the 12 months ending in September, which BLS said amounted to a 0.6% decline after inflation. Taken together, the two reports show pay rising, but not as fast as prices, for the typical worker over the past year.

The monthly figures contrast with the quarterly view in Thursday's GDP report, which showed the PCE price index rising at a 2.1% annual rate in the third quarter, down from 5.0% in the second. The September jump came at the end of that quarter.

For households, the practical reading is that September's higher spending was mostly paying more for the same things. The report does not break the figures down by income group or by state.

The next Personal Income and Outlays report, covering October, is scheduled for Nov. 25 at 8:30 a.m., according to the bureau.

Still unknown: whether the September jump in the overall index was a one-month fuel spike or the start of a longer run, and how the saving rate will hold up if real income keeps falling.