Fed's Inflation Gauge Shows Smaller-Than-Expected Price Increase

The Federal Reserve's primary inflation measure showed a smaller-than-expected price increase in August, offering some relief to markets anxious about rising borrowing costs.

The personal consumption expenditures (PCE) price index rose 0.3% on a seasonally adjusted monthly basis, putting the 12-month headline gain at 3.4%, below the 3.7% forecast from economists surveyed by Dow Jones.

Core PCE, which strips out volatile food and energy prices, climbed 0.2% for the month and 3.0% annually, compared with forecasts of 0.3% and 3.3% respectively.

The softer-than-expected reading led to a shift in expectations from an October rate hike to a December increase instead, as stock market futures rose following the report and Treasury yields fell.