The Line: August Core PCE Inflation in Line with Expectations

Today, we’re all about inflation as the Fed’s favorite measure of it came out this morning.

August Core PCE Inflation in Line with Expectations

The core personal consumption expenditures price index—or Core PCE for short—was 2.9% higher in August than a year ago. This is good news because:

• It was unchanged from theprevious month
• It matched the market’s expectations.

After the August CPI figure came in a little higher than expected there was concern that inflation would start moving in the wrong direction. This report should calm that fear, and since core PCE is the Fed’s favorite inflation gauge, it should keep the Fed on track for two more rate cuts this year.

For those concerned about tariffs pushing inflation higher, you won’t find proof of that in this report. The PCE price index for goods rose just 0.1% in August, after declining 0.1% in July. Not what you would expect to see if tariffs were causing broad-based inflation.

Another positive bit of data in this release was that real consumer spending—“real” means it’s adjusted for inflation—rose by 0.4% last month, doubling the 0.2% forecast. This was the second consecutive time themonthly increase in real spending came in at 0.4%, a good sign for the third quarter GDP figure. Remember that consumer spending is about 70% of theGDP calculation.

To sum up, we expect the Fed to cut rates by 0.25% at their October and December meetings, and despite a weakening labor market consumers are still spending money at a strong pace.