US inflation heats up in September; consumer spending rises

The Personal Consumption Expenditures Price Index climbed 0.5% last month after an unrevised 0.3% rise in August, the Commerce Department's Bureau of Economic Analysis said on Thursday. The increase was in line with economists' expectations. In the 12 months through September, PCE inflation advanced 3.6% after an unrevised 3.4% rise in August.

The data was included in the government's advance gross domestic product report for the third quarter, which showed the economy growing at a 3.4% annualized rate during that period.

Excluding the volatile food and energy components, the PCE Price Index rose 0.3% over the month after an upwardly revised 0.3% gain in August.The so-called core PCE inflation was previously estimated to have climbed 0.2% in August.

Core PCE inflation increased 3.1% year-on-year in September after an unrevised 3.0% rise in August.

The US central bank tracks the PCE price measures for its 2% inflation target. The Fed on Wednesday left its benchmark interest rate in the current 3.75%-4.00% range while acknowledging that inflation "remains elevated."

Fed Chairman Kevin Warsh told reporters that "energy and related prices have moved higher again in recent weeks, and our job is to ensure that relative price changes in some sectors do not broaden out across the economy, and that inflation expectations remain as they are anchored."

Financial markets were pricing in a roughly 84.6% chance of a rate hike in December, CME's FedWatch Tool showed.

Higher prices inflated consumer spending numbers in September. Consumer spending, which accounts for more than two-thirds of economic activity, rose 0.5% last month after an unrevised 0.9% increase in August, the BEA said.

When adjusted for inflation, consumer spending was unchanged last month, heading into the fourth quarter on a weaker growth trajectory. Spending increased at a 3.8% rate in the July-September quarter.