US inflation rises below expectations in August; consumer spending robust
SPY•The PCE price index rose 0.3% in August and 3.4% year over year, while core PCE inflation rose 0.2% monthly and 3.0% annually. Consumer spending surged 0.9%, and second-quarter GDP growth was revised up to 2.2%.
1. Inflation readings
The PCE price index increased 0.3% in August, below economists’ 0.4% forecast, after a downwardly revised 0.1% gain in July. Year-over-year inflation was 3.4% in August; the July figure was also revised to 3.4% from 3.7%. Core PCE prices rose 0.2% in August and 3.0% year over year. The government changed its methodology for some price components and revised inflation data back to 2021.
2. Spending remains strong
Consumer spending surged 0.9% in August after a downwardly revised 0.1% gain in July; adjusted for inflation, spending rose 0.6%. Personal income increased 0.2%, and the saving rate fell to 4.1% from 4.6%, though annual revisions showed households had more savings than previously estimated.
3. Rate expectations and growth
The report likely reduced the urgency for another Federal Reserve rate hike in October, while another increase this year remained on the table. Markets priced in a 34.9% chance of an October increase, down from 51.5% before the inflation data. Second-quarter GDP growth was revised up to an annualized 2.2%.
