The Federal Reserve’s primary inflation rate showed that core price pressures cooled further in August even as rising energy prices lifted headline inflation. The personal consumption expenditures (PCE) price index rose by 0.4% in August, with the annual inflation rate increasing to 3.5%. However, core inflation, which excludes volatile food and energy prices, only rose by 0.1% in August, with the core 12-month inflation rate easing to 3.9%. This is the lowest reading since September 2021. Wall Street economists had expected a 0.2% monthly increase in the core PCE price index and a 0.5% gain overall.
Other data also showed that personal spending moderated in August after a surge in June and July. Personal consumption expenditures rose by 0.4% in August, slightly below expectations, and adjusted for inflation, consumer spending rose by just 0.1%. The Federal Reserve chair, Jerome Powell, emphasized strong consumer spending as a reason for policymakers to project only a quarter-point rate cut over the next 15 months. The recent data confirms the Federal Reserve’s focus on core PCE services excluding housing, or supercore services, which reflect the impact of wage growth and the tight labor market on inflation. While the inflation rate for this category of spending eased slightly in August, it still remains high.