WASHINGTON: A key measure of US inflation slowed in August, retreating from six-year highs recorded earlier in the summer but still hovering at the central bank’s target, the government reported Friday.
The respite from sustained price pressures follows the Federal Reserve’s decision this week to raise interest rates, tightening monetary policy to prevent inflation that policymakers expect to rise into next year.
Meanwhile, the Commerce Department report also showed a pause in consumer spending in August, with the smallest gains in six months, dampening momentum a little at the middle of the third quarter.
The Federal Reserve’s preferred inflation measure, the Personal Consumption Expenditures price index, rose 2.2% in August, down from the 2.3% recorded for May, June and July.
The PCE index in May and June were both revised upwards by a tenth of a point. The index tracks costs in goods and services purchased by individuals.
Excluding the volatile food and fuel segments, core PCE prices rose only 2% over August of 2017, slower than in July but right at the Fed’s target rate, the report found.
That important indicator, which the Fed watches closely, has held right on target for four months in a row.
And prices rose just 0.1% compared to July, matching analyst expectations, but when food and fuel are excluded, the month-to-month “core” index was flat.
Meanwhile, consumers’ incomes rose 0.3% for the second month in a row, a tenth of a point below forecasts.
But consumer spending slowed slightly, rising just 0.3% in August, in line with economists’ expectations but the lowest since February.
Ian Shepherdson of Pantheon Macroeconomics said an upward revision to spending in July meant the quarter was likely to see a better-than-expected gain of about 3.5%.
“The likelihood of a clear rebound in auto sales after a soft August makes this a decent bet,” he wrote in a client note.