US inflation rises below expectations in August, gives the Fed breathing space
TLT•The PCE price index rose 0.3% in August, below the 0.4% expected, while core PCE rose 0.2%. Consumer spending surged 0.9%, and markets lowered the odds of an October rate hike to 41.5%.
1. Inflation and rate outlook
The PCE price index rose 0.3% in August after a downwardly revised 0.1% increase in July, below economists’ 0.4% forecast. Year-on-year PCE inflation was 3.4%; core PCE inflation rose 0.2% for the month and 3.0% over the year. Methodology changes lowered previously reported July inflation figures. Markets priced in a 41.5% chance of an October rate hike, down from 51.5% before the report.
2. Spending and growth
Consumer spending surged 0.9% in August, while inflation-adjusted spending rose 0.6%. Income increased 0.2%, and the saving rate fell to 4.1% from 4.6% in July. Second-quarter GDP growth was revised up to 2.2%; the goods trade deficit widened 11.5% to $132.6 billion in August.
