The Federal Reserve’s preferred inflation gauge, the personal consumption expenditure (PCE) price index, fell below expectations, indicating that the central bank is getting closer to its 2 percent target. According to the Bureau of Economic Analysis (BEA), the PCE price index rose by 0.1 percent in August, down from a 0.2 percent increase in July. The PCE decelerated to 2.2 percent year over year, down from 2.5 percent in the previous month.
Both readings came in lower than economists had predicted. The PCE data showed that prices for goods dropped by 0.9 percent compared to a year ago, while services saw a surge of 3.7 percent. Food costs increased by 1.1 percent, but energy prices fell by 5 percent.
Excluding volatile energy and food components, the core PCE also increased at a slower pace than expected at just 0.1 percent compared to July’s figure of 0.2 percent.
However, the core PCE index did tick up slightly to reach 2.7 percent from the same month last year, matching market forecasts.
The latest inflation data presents mixed results for the Federal Reserve as they strive for their goal of sustainable inflation at around two percent.
The updated September Summary of Economic Projections revealed that officials anticipate a median PCE inflation rate of 2.3% and a median core PCE rate of 2.%6 by year-end.
Further BEA data highlighted smaller-than-expected increases in personal income and personal spending rates at just .02%. This is down from July’s figures which stood at .03% and .05%, respectively.
The personal saving rate as a percentage of disposable personal income dipped slightly from July’s figure of .049% to .048%.
Looking ahead, Cleveland Fed’s Inflation Nowcasting model predicts an annual PCE inflation rate next month at around %21 with core PCE inflation penciled in at %27.
