PCE Price Index Remains Elevated Amid War-Driven Energy Shock

US inflation remained stubbornly elevated in August despite expectations of some cooling due to methodological changes made by the Commerce Department. The Personal Consumption Expenditures price index, or PCE, rose 0.3% from July, bringing the annual rate to 3.4%, unchanged from the previous month.

The increase was driven by a surge in fuel and energy prices following the war in Iran. Excluding volatile food and energy prices, the core PCE price index rose 0.2% from July, staying at the downwardly revised annual rate of 3% for a third-straight month.

Consumer spending remained resilient, with inflation-adjusted spending up 0.6% in August, the strongest monthly increase in more than a year. However, Americans have been drawing down their reserves, with the saving rate dropping to 4.1%, a nearly four-year low.