PCE Inflation Accelerates to 2.7%, Igniting Concerns for Commodity Markets

Washington D.C., September 26, 2025 – The Personal Consumption Expenditures (PCE) price index, the Federal Reserve’s preferred measure of inflation, recently accelerated to 2.7% year-over-year in August 2025. This uptick from 2.6% in July, and a steady core PCE at 2.9% (excluding volatile food and energy prices), signals persistent inflationary pressures that continue to hover above the Federal Reserve’s long-term target of 2%. This development has sent ripples through financial markets, raising questions about the trajectory of interest rates and the future prices of key commodities like oil, natural gas, and metals.

The acceleration of headline PCE inflation to 2.7% is a critical indicator that the overall cost of living is rising, challenging the Federal Reserve’s objective of restoring price stability. While the August figures were largely in line with market forecasts, preventing a dramatic market shock, they reinforced the notion of “sticky” inflation. This environment complicates the Fed’s monetary policy decisions, especially after a recent 25 basis point rate cut, as it weighs the need to support a weakening labor market against the imperative to control inflation.

Detailed Coverage: The Persistent Inflationary Challenge

The PCE index, compiled monthly by the Bureau of Economic Analysis (BEA), is favored by the Fed over the Consumer Price Index (CPI) because it accounts for shifts in consumer spending patterns and covers a broader range of goods and services. The current 2.7% headline PCE rate marks its highest level since February 2025, following a gradual re-acceleration from 2.6% in June and July. Month-over-month, PCE increased 0.3% in August, with core PCE rising 0.2%.

This persistent inflation comes despite the Federal Reserve’s first rate cut of the year, which brought the benchmark rate to 4.00%-4.25%. Fed Chair Jerome Powell and other officials have consistently warned against rushing further rate cuts, citing ongoing inflation risks. Their stance is bolstered by recent robust economic data, including a strong jobs report and an upward revision to second-quarter GDP growth (3.8%), which collectively reduce the urgency for aggressive monetary easing.

Key factors contributing to this inflationary backdrop include ongoing supply chain issues, rising labor costs, and the impact of tariffs. The Commerce Department has noted that tariffs are partly responsible for pushing up prices, with economists estimating that roughly two-thirds of the tariff burden is passed on to consumers. Furthermore, resilient consumer spending, up 0.6% in August, indicates underlying economic strength but also suggests demand-side pressures. Services inflation, particularly core services excluding housing (“supercore” PCE), remains a significant driver, rising 3.6% in August.

Historically, the core PCE price index averaged 3.24% from 1960 to 2025, with peaks reaching over 10% in the 1970s. While current rates are well below those historic highs,…