- Consumer spending rises 0.4% in August
- Core PCE Price Index Rises 0.1%; 3.9% more than in the previous year
- Personal income increases by 0.4%; Savings rate falls to 3.9%
WASHINGTON, Sept 29 (Reuters) – Underlying U.S. inflation weakened in August, with annual price increases excluding food and energy falling below 4.0% for the first time in more than two years. This is welcome news for the Federal Reserve as it considers its monetary policy outlook.
The battle against inflation is far from won, however, as Friday’s Commerce Department report showed overall prices were still elevated, driven in part by higher gasoline prices.
While the economy remains strong, consumer spending is slowing, which, along with easing underlying price pressures, raised hopes that the Federal Reserve will not raise interest rates in November. The consumer spending and inflation report is likely to be the last official release of economic data before an expected partial U.S. government shutdown scheduled to begin after midnight Saturday. A prolonged data outage could also result in the Fed’s unwillingness to raise interest rates at its October 31-November 31 meeting. 1 meeting.
“This report suggests that there is progress on inflation,” said Conrad DeQuadros, senior economic adviser at Brean Capital in New York. “I think Fed officials are at a point where they are shifting their focus to how long we can keep rates at these high levels, rather than how much higher rates need to go.”
The personal consumption expenditures (PCE) price index, excluding the volatile food and energy components, rose slightly by 0.1% last month. That was the smallest increase since November 2020 and followed a 0.2% rise in July. Economists polled by Reuters had forecast the core PCE price index would rise 0.2%.
In the 12 months to August, the so-called core PCE price index rose 3.9%. It was the first time since June 2021 that the annual core PCE price index was below 4.0%. The core PCE price index rose 4.3% in July.
inflation
The slowdown in underlying inflation was reinforced by two new price measures, the PCE price index excluding food, energy and housing and the PCE price index excluding energy and housing, which the government introduced with the August report.
The PCE price index excluding food, energy and housing also rose 0.1% last month after rising 0.2% in July. PCE services excluding energy and real estate inflation rose 0.1%. So-called super core inflation rose by 0.5% in the previous month. Policymakers are watching the super-core price metric as they try to gauge progress in the fight against inflation.
The inflation outlook was also supported by a University of Michigan survey showing consumers’ 12-month inflation expectations fell to 3.2% this month from 3.5% in August, the lowest level since March 2021 Consumers’ long-term inflation expectations fell to 2.8% from 3.0% in the previous month.
UMich inflation expectations
But rising oil prices, which are driving up gasoline prices at the pump, suggest the path to the Fed’s 2% inflation target will be long.
A woman carrying a Staud shopping bag walks past people queuing outside a pop-up shop in the SoHo district of New York City, U.S., September 21, 2023. REUTERS/Bing Guan LICENSE
The overall PCE price index rose 0.4% in August after rising 0.2% in July. In the 12 months to August, the PCE price index rose 3.5%, after rising 3.4% in July. The central bank tracks PCE price indices for monetary policy.
Stocks on Wall Street traded mixed. The dollar fell against a basket of currencies. U.S. Treasury bond prices rose and yields fell further from multi-year highs.
“It could be a big psychological victory for the bulls to get the (core) number below 4% year-on-year and help keep the 10-year yield under control,” said David Russell, global head of market strategy at TradeStation.
CONSUMERS SPEND COOLING
The Fed held interest rates steady last week but tightened its tight monetary policy stance. Since March 2022, it has raised its key interest rate by 525 basis points to the current range of 5.25% to 5.50%. Financial markets currently expect the central bank to keep interest rates unchanged from October 31 to November 31. 1 policy session, according to CME Group’s FedWatch tool.
Consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose 0.4% last month after rising 0.9% in July. This was partly due to higher sales at gas stations due to rising gasoline prices. Spending was also boosted by higher spending on housing and utilities, as well as transportation, hospitals and outpatient services.
Adjusted for inflation, spending rose slightly by 0.1% after rising 0.6% in July. Consumer spending is expected to have regained momentum in the third quarter after slowing in the April-June period, maintaining economic growth.
Spending was supported by incomes, which rose 0.4% thanks to a tight labor market, while wages rose 0.5%. Households also poured into savings, with the savings rate falling to 3.9% from 4.1% in July, the lowest level since last December. Rising gas prices, falling savings and the resumption of student loan repayments could weigh on spending.
ownconsumption
The government shutdown, which is furloughing hundreds of thousands of federal employees and reducing access to food and nutritional assistance programs for millions of people across the broad spectrum of disrupted services, is having a negative impact on spending.
“In these figures, there are no signs of a major decline in consumer spending that would indicate an impending recession, but certainly increasing signs of stress as consumers increasingly struggle under the burden of rising energy prices and credit costs and income growth slows said Scott Anderson, chief U.S. economist at BMO Capital Markets in San Francisco.
The growth outlook for this quarter was bolstered by other Commerce Department data on Friday that showed the goods trade deficit narrowed 7.3% to $84.3 billion in August, with exports rising and imports falling. Retailers also increased their inventories. Gross domestic product growth in the third quarter is estimated to be up to 4.9% on an annual basis. The economy grew by 2.1% in the second quarter.
Reporting by Lucia Mutikani; Edited by Paul Simao
Our standards: The Thomson Reuters Trust Principles.
Comments are closed.