Consumer prices grew at a slower-than-expected pace in August, offering signs that inflation may be cooling more quickly than anticipated, according to the Personal Consumption Expenditures (PCE) Price Index.
- Consumer prices rose just 0.1% in August, down from the 0.2% increase in July. This marked the second-best month for price stability in 2024, providing some relief for consumers and policymakers.
- On an annual basis, the PCE index fell to 2.2%, down from 2.4% in July, reaching its lowest level since February 2021. This exceeded economists’ predictions, who had expected the index to slow to 2.3%.
Core prices, which strip out the more volatile food and energy sectors, also increased by a modest 0.1% in August—better than the 0.2% rise economists had forecasted.
- However, core prices were still up 2.7% compared to the same period last year, highlighting ongoing inflationary pressures in parts of the economy.
Income & Spending: Personal income grew by $50.5 billion, or 0.2%, in August, down from the 0.3% gain in July. This was the smallest monthly increase in personal income since July 2023.
- Similarly, personal outlays, which include consumer spending, interest payments, and transfer payments, rose by $48.3 billion, or 0.2%, in August. This was a significant slowdown from July’s 0.5% increase and the weakest rise since January.
- Both income and spending came in below economists’ expectations, who had projected a 0.4% rise in income and a 0.3% increase in spending.
Bottom Line: This data plays a crucial role in the Federal Reserve’s decision-making process. Some analysts have voiced concerns that the Fed’s aggressive interest rate hikes might have gone too far, risking a downturn in economic growth. However, the latest report suggests that inflation is slowing more than expected, lending support to the Fed’s stance. The central bank has shifted its focus from inflation to concerns about a weakening labor market and broader economic stability.
