The U.S. Commerce Department said the personal consumption expenditures price index, the Federal Reserve’s main inflation gauge, rose 0.3% in August from the previous month and 3.4% from a year earlier. Economists surveyed by Dow Jones had expected the same monthly increase but a higher annual reading of 3.7%.
Core PCE, which excludes food and energy, increased 0.2% on the month, bringing the 12-month rate to 3%. That was below forecasts of 0.3% and 3.3%, respectively. While the Fed officially tracks headline PCE, policymakers generally view the core measure as a better guide to longer-term inflation trends.
Markets reacted positively to the release: stock futures moved higher and Treasury yields fell. Traders lowered the probability of another Fed rate hike in October, shifting expectations for the next possible increase more toward the December meeting.
The report also showed personal income rising 0.2% while consumer spending increased 0.9%, compared with consensus estimates of 0.4% and 0.8%. In a separate release, second-quarter U.S. GDP was revised sharply higher, with the final estimate showing a 2.2% annualized growth rate, supported by stronger consumer and government spending and private sales.
Even with the softer-than-expected inflation reading, both headline and core PCE remain well above the Fed’s 2% target. Energy was the main driver of August price growth: gasoline prices jumped 4.4%, transportation services rose 1.4%, and energy goods and services increased 2.3%.
