Core PCE Holds at 2.9% as Consumer Spending Outpaces Income — Evening Brief – 09.26.25  

The Federal Reserve’s preferred inflation gauge — the Core Personal Consumption Expenditure (PCE) Price Index — remained above the central bank’s 2% target in August, coming in exactly as expected, according to data released Friday by the Bureau of Economic Analysis. 

Core PCE, which strips out food and energy costs, rose 0.2% for the month, matching consensus, after a 0.2% rise in July (revised from +0.3%). Year-over-year, the index increased 2.9%, unchanged from July’s pace and still nearly a full percentage point above the Fed’s target. The broader PCE Price Index, which includes food and energy, climbed 0.3% in August, also in line with expectations, bringing the annual rate to 2.7%, up slightly from 2.6% in July. 

Despite steady inflation, consumer spending rose 0.6%, topping the +0.5% forecast, led by gains in transportation services (+$13.9B), food services and accommodations (+$13.0B), and recreational goods and vehicles (+$11.1B). Personal income rose 0.4%, but with spending growth outpacing income, the personal savings rate slipped to 4.6%, a new 2025 low. 

The resilience in spending highlights continued consumer confidence, though at the cost of drawing down savings. While the savings rate is low by historical standards, it is not yet signaling acute financial stress among households. For policymakers, the August PCE underscores the challenge of balancing sticky inflation with robust demand. With the Fed already split on the timing of rate cuts, this report will likely reinforce a cautious stance ahead of the October meeting.