Fed Gets Reprieve from US Inflation Rate

US inflation rose less than expected in August, providing some breathing space for the Federal Reserve to consider its next move on interest rates. The Consumer Price Index (CPI) increased by 0.3% last month after a downwardly revised 0.1% gain in July. Economists polled by Reuters had forecasted a 0.4% rise.

The increase was driven by a 4.4% rebound in gasoline prices, while food prices remained unchanged. Over the past 12 months, PCE inflation advanced 3.4% after increasing by a downwardly revised 3.4% in July. The BEA changed its methodology for calculating prices for software and accessories, portfolio management fees, and legal services in the PCE price index.

Excluding volatile food and energy components, the PCE price index climbed 0.2% over the month after a downwardly revised 0.1% rise in July. Core PCE inflation increased 3.0% year-on-year in August after a downwardly revised 3.0% advance in July.

Despite the lower-than-expected inflation rate, financial markets have knocked down bets for additional policy tightening next month. However, another rate hike this year remains on the table as consumer spending surged last month.