U.S. inflation increased less than expected in August, which could see financial markets further reduce the odds of another interest rate increase from the Federal Reserve next month.
The Personal Consumption Expenditures Price Index rose 0.3 per cent last month after a downwardly revised 0.1 per cent gain in July, the Commerce Department’s Bureau of Economic Analysis said on Wednesday.
Economists polled by Reuters had forecast the PCE price index rising 0.4 per cent after a previously reported 0.2 per cent gain in July. In the 12 months through August, PCE inflation advanced 3.4 per cent after increasing by a downwardly revised 3.4 per cent in July.
PCE inflation was previously reported to have increased 3.7 per cent in July on a year-on-year basis. The BEA changed its methodology for calculating prices for software and accessories, portfolio management fees and legal services in the PCE price index. It also revised the inflation data going back to 2021.
Excluding the volatile food and energy components, the PCE Price Index climbed 0.2 per cent over the month after a downwardly revised 0.1 per cent rise in July. The so-called core PCE inflation was previously estimated to have gained 0.2 per cent in July.
Core PCE inflation increased 3.0 per cent year-on-year in August after a downwardly revised 3.0 per cent advance in July. Underlying inflation was initially estimated to have risen 3.3 per cent in the 12 months through July.
The U.Ss central bank tracks the PCE price measures for its 2-per-cent inflation target. The Fed this month raised its benchmark overnight interest rate to the 3.75 per cent-4.00 per cent range, the first rate hike in three years, and flagged further increases in borrowing costs in the months ahead.
The odds of an October rate hike were diminished by New York Fed President John Williams’ comments on Tuesday that he saw “no urgency” for further action. Prior to the inflation data, financial markets priced-in a roughly 51.5 per cent chance of further policy tightening next month down from 70 per cent on Monday, CME’s FedWatch Tool showed.
Higher inflation and borrowing costs could crimp consumer spending. A survey from the Conference Board on Tuesday showed consumer confidence plummeting to a near 12-½-year low in September. There are, however, no signs yet of consumers significantly dialing back.
Consumer spending, which accounts for more than two-thirds of economic activity, surged 0.9 per cent last month after a downwardly revised 0.1 per cent gain in July, the BEA said. Spending was previously estimated to have gained 0.2 per cent in July.