Fed Given Breathing Space as US Inflation Rises Less Than Expected

US inflation rose less than expected in August, giving the Federal Reserve some breathing space.

The Consumer Price Index (PCE) increased by 0.3% last month after a downwardly revised 0.1% gain in July, according to the Commerce Department's Bureau of Economic Analysis.

Economists polled by Reuters had forecasted a 0.4% rise in PCE inflation, so this news may reduce the urgency for another rate hike in October.

However, Sal Guatieri, a senior economist at BMO Capital Markets, said that 'the less-than-feared price data for August may buy the Fed time to await more data and pass on October 28, but still-elevated inflation and a resilient consumer and economy point to another rate hike by year-end.'

The PCE inflation measure is closely watched by the Fed as it targets an annual inflation rate of 2%.