August Inflation Eases Fed Rate Hike Pressures Amid Strong Consumer Spending

US inflation rose less than expected in August, easing pressure on the Federal Reserve to raise interest rates again. According to the Commerce Department's Bureau of Economic Analysis, the Personal Consumption Expenditures Price Index increased by 0.3% last month after a downwardly revised 0.1% gain in July.

The report was seen as less-than-feared by economists, who had forecast a 0.4% rise in the PCE price index. However, inflation remains elevated, and consumer spending surged 0.9% last month, indicating that the economy is still strong despite headwinds from the US-Israeli war with Iran.

The Federal Reserve raised its benchmark overnight interest rate to the 3.75%-4.00% range this month, and while there are expectations of another rate hike by year-end, financial markets have priced in a lower chance of an October increase.

Sal Guatieri, a senior economist at BMO Capital Markets, said that the less-than-feared price data may give the Fed time to await more data before making a decision. Stephen Stanley, chief US economist at Santander US Capital Markets, noted that two months' worth of data is not enough to point to a new trend.

However, Veronica Clark, an economist at Citigroup, remains cautious about consumer spending in coming months due to slowing real labor incomes and higher gas prices. The anticipated boost to GDP growth from strong consumer spending this quarter could be offset by sharply rising imports related to robust domestic demand.