In August, inflation continued to approach the target level of the Federal Reserve, dropping to an annualised rate of 2.2 per cent and ahead of forecasts.
The Commerce Department reported on Friday the price index for consumer spending rose 0.1 per cent for the month, bringing the 12-month inflation rate to 2.2 per cent, down from 2.5 per cent in July and the lowest level since February 2021. The Fed’s inflation target is 2 per cent a year.
Excluding food and energy, core PCE rose 0.1 per cent in August and 2.7 per cent from a year earlier, the 12-month rate 0.1 percentage point higher than in July. Federal Reserve officials tend to focus more on the core rate as the best gauge of longer-term trends. The respective forecasts were 0.2 per cent and 2.7 per cent for the core rate.
Although the inflation numbers indicate continued progress, the personal spending and income numbers were up. Personal income rose 0.2 per cent over the month, while spending rose 0.2 per cent. Corresponding estimates had suggested increases of 0.4 per cent and 0.3 per cent.
The progress in August came despite continued pressure from housing-related spending, which rose 0.5 per cent over the month, the biggest increase since January. Prices for services as a whole rose 0.2 per cent, while goods fell 0.2 per cent.
It was the first easing of central bank policy since March 2020 in the early days of the COVID pandemic, and it was an unusually large-scale action for the Fed, which prefers to change rates in quarter-point increments.
