2023-09-29 14:06:43
The Fed’s favorite inflation gauge rose less than expected, showing progress in the battle once morest rising prices.
The U.S. Department of Commerce reported on Friday (29th) that the personal consumption expenditures (PCE) price index excluding food and energy rose 0.1% in August, lower than the “Dow Jones》The consensus estimate of economists was 0.2%. On an annual basis, core PCE’s annual growth rate was 3.9%, in line with expectations.
This was the smallest monthly increase since November 2020.
With inflation rising modestly, consumer spending grew 0.4% in current dollars, down sharply from 0.9% in July. In real terms, spending rose just 0.1% following rising 0.6% in July.
Including food and energy, the overall PCE increased by 0.4% from the previous quarter and an annual increase of 3.5%. Headline inflation has been climbing in recent months following reaching 3.2% in June.
While it is one of many reference indicators used by the Federal Reserve to measure inflation, the PCE index is considered particularly valuable because it takes into account changes in consumer behavior, such as the substitution of lower-priced goods for more expensive ones. It therefore provides a better picture of the cost of living than the more widely followed Consumer Price Index (CPI), which only measures costs without taking into account substitutions.
The core PCE annual rate fell below 4% for the first time in nearly two years, down from 4.3% in July.
Inflation this month was mainly driven by energy costs. Energy costs increased by 6.1%; food prices increased by 0.2%. On an annual basis, energy prices fell 3.6%, while food prices rose 3.1%.
The Federal Reserve sets an inflation target of 2% as an indicator of healthy economic growth. Core PCE last reached this level in February 2021.
The Fed has been raising interest rates sharply since March 2022, but it chose to skip September as it assesses the impact of a total of 5.25 percentage points of rate hikes. The Fed is widely expected to stop raising interest rates, even though this month’s meeting highlighted the possibility of another quarter-percentage point increase by the end of the year.
Since the latest meeting, many Fed officials have predicted that interest rates will remain high for an extended period of time.
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