PCE Index Stabilizes as Consumer Spending Surges

US inflation rose less than expected in August, while consumer spending surged. This development could temper expectations of another Federal Reserve interest rate hike next month.

The Personal Consumption Expenditures (PCE) price index increased by 0.3% in August, following a 0.1% rise in July. Economists had forecasted a 0.4% increase. On an annual basis, PCE inflation remained at 3.4%, unchanged from the previous month after earlier estimates were revised.

Core inflation, which excludes volatile food and energy prices, also rose by 0.2% in August. Annual core inflation was steady at 3.0%, matching July's figure.

The Federal Reserve monitors the PCE index to gauge how close inflation is to its 2% target. The central bank recently raised its benchmark interest rate for the first time in three years, setting it between 3.75% and 4.00%. However, New York Federal Reserve Bank President John Williams downplayed the need for further action, saying 'no urgent need' exists.

Despite a sharp rise in household outlays and a weaker-than-expected price reading, consumer spending increased by 0.9% in August. High inflation and more expensive borrowing could weigh on consumption, but so far, this hasn't led to a noticeable decline in spending.