Announced this morning, the PCE Deflator increased 0.3% in August as expected and was up 2.7% on an annual basis. The Core PCE Deflator, which excludes food and energy prices and is closely monitored by the Federal Reserve for policy decisions, increased 0.2% in August, also as expected. The core rate grew 2.9% on an annual basis, which is the same as the previous month’s figure.
In addition, Personal Income increased 0.4% in August, higher than expected and the same as the previous month’s increase. Personal Spending increased 0.6% in August, also above expectations and is one tenth higher than last month’s increase. The personal savings rate as a percentage of disposable income was 4.6%.
Overall, inflation as measured by the PCE was as expected in August for both the headline and core measures. On an annual basis each figure remains just below 3%, with the core rate still stubbornly above the Federal Reserve’s 2% target. Meanwhile, both income and spending increased more than expected in August and the savings rate moved slightly lower in the month as the increase in spending was higher than the increase in income.
While headwinds from tariffs remain in place for a broad set of consumers, spending continues in the economy. Even so, the Federal Reserve reduced the funds rate by 0.25% at their latest meeting, citing weakness in the labor market. Considering there will be some fiscal support in the coming months from the bill passed this summer, how well consumers and the labor market hold up in the meantime will be key for Fed policy and the economy.
In all, the yield on the 10-year US Treasury is little-changed following the report and equity futures are higher as we head into the market open.
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