Latest PCE reading is positive signal for the Fed

The cost of living in the US is increasing. Last month’s overall inflation was heated up by higher gasoline prices, but the Fed received some good news: its preferred inflation indicator dropped to its lowest level in two years.

For the 12 months ending in August, the core Personal Consumption Expenditures index, a frequently monitored inflation indicator that excludes petrol and food prices, increased by 3.9%. According to data from the Commerce Department released on Friday, it is the lowest annual gain that index has experienced in two years and is a move in the right direction towards the Fed’s aim of 2% inflation.

Core PCE increased by 0.1% on a monthly basis, which was the worst growth rate since a 0.3% fall in April 2020.

The overall PCE index rose 0.4% from July and 3.5% annually, taking into account the more volatile food and energy sectors. That represents an increase from the corresponding 0.2% and 3.4% rates observed in July. However, it was also widely anticipated that petrol prices would increase last month. According to the research, the cost of energy-related goods and services increased sharply in August from July by 6.1%.

According to Refinitiv, economists predicted that the headline PCE index will increase by 0.5% each month and 3.5% annually.

The most recent Personal Income and Outlays report from the Commerce Department also demonstrated that consumers reduced their spending in August while increasing their incomes by 0.4%.

Since it provides a thorough overview of pricing, income, and spending statistics, the monthly Personal Income and Outlays reports from the Commerce Department are frequently closely observed. The news from Friday, though, might be more significant. The report from the Commerce Department might be the last significant piece of federal economic data the Fed can access in the interim if the US government does, in fact, shut down, and for a lengthy period of time.