Remember when half the financial media swore that new tariffs would send prices through the roof the moment they were announced? Yeah, me too. Yet here we are, staring at the Federal Reserve’s preferred inflation gauge, and it’s acting like nothing dramatic is happening at all.
Honestly, it feels a little satisfying to watch a loudly trumpeted narrative quietly deflate in real time.
The Number Everyone Actually Watches
Let’s get the headline out of the way first. Core Personal Consumption Expenditures – the Fed’s favorite way to measure underlying inflation – rose a tame 0.2% month-over-month in September. That kept the year-over-year reading at 2.8%, just a hair below August’s 2.9% and bang in line with every economist’s forecast.
No acceleration. No surprise jump. Nothing even remotely resembling the “inflationary shock” many predicted once trade policy started making headlines again.
Call me cynical, but I’ve learned over the years that the loudest forecasts are often the ones that age the worst.
Goods vs Services: Where the Real Story Lives
One of the most useful breakdowns inside the PCE report is the split between goods and services inflation. If tariffs were truly biting consumers already, we’d expect the goods category to light up like a Christmas tree.
Instead? Goods prices barely budged – up a whisper-positive amount that rounds to almost nothing. The entire upward nudge in the overall index came from services, which, let’s be honest, have very little to do with import duties and everything to do with domestic wage pressures and housing costs.
In other words, the inflation we’re seeing right now is almost entirely home-grown, not imported.
That single fact should make anyone pause before repeating the “tariffs equal instant hyper-inflation” talking point.
SuperCore Services: The Trend That Keeps Improving
If you really want to understand where the Fed is looking these days, zoom in on SuperCore services inflation – basically services excluding energy and housing. This is the stuff policymakers lose sleep over.
September’s reading slipped to around 3.25% year-over-year, continuing a gentle downtrend that started earlier this year. Financial services and food/accommodation costs – two big components – essentially flat-lined.
Look, I’m not saying inflation is solved. Far from it. But the trajectory remains downward, and nothing in the latest release suggests that trajectory is about to reverse because of trade policy.
Consumers Aren’t Rolling Over Either
Another pleasant surprise buried in the report: personal income growth actually outpaced spending growth for once. That’s not something we’ve seen consistently in the post-pandemic era.
- Income ↑ more than spending
- Savings rate held steady at 4.7%
- No evidence of households suddenly cracking under pressure
In my experience, when people start warning about “the consumer is tapped out,” the data often shows the exact opposite for months afterward. September fits that pattern perfectly.
The Private vs Public Wage Divergence Nobody Talks About
Here’s the chart I found most fascinating this month – and oddly under-reported.
Private sector wages jumped to 5.8% year-over-year growth in September – the fastest pace since spring 2024. Meanwhile, government worker compensation rose a much more modest 4.2%, basically unchanged and near multi-year lows.
That widening gap tells you a lot about where labor market heat is actually concentrated right now. Private companies are still competing aggressively for talent, while the public sector remains comparatively restrained.
Is that sustainable forever? Probably not. But it’s another data point showing the economy isn’t behaving like one on the verge of an inflationary breakdown.
Yes, the Data Is Lagged – But That Cuts Both Ways
Every time these reports come out, someone rushes to point out that September data is “stale” and doesn’t reflect more recent tariff announcements or market volatility.
Fair enough. But if the critique is that the data is too old to capture inflationary shocks, then it’s equally too old to capture any supposed cooling that might have happened since. The reality is we work with what we have, and what we have right now shows remarkable resilience in the face of very loud predictions to the contrary.
Look, I’m not here to declare victory over inflation or pretend policy changes won’t matter at all. Of course they will – eventually. Supply chains take time to reroute, contracts take time to renegotiate, and price adjustments often lag reality by quarters, not weeks.
But the idea that tariffs would produce an immediate, obvious spike in the Fed’s preferred inflation gauge? That was always a stretch. And the latest numbers are making that stretch look more like a fantasy with each passing month.
Sometimes the most valuable thing a data release can do is simply fail to confirm our worst fears. September’s PCE report did exactly that – quietly, confidently, and with better underlying details than most people bothered to notice.
In a world that runs on narratives, a little dose of reality feels pretty refreshing.
