The personal consumption expenditures (PCE) price index climbed 0.3% from July to August and was up 3.4% from a year earlier, according to data released Wednesday by the Bureau of Economic Analysis (BEA).
When volatile food and energy prices are stripped out, annual inflation stood at 3% in August. Food and energy prices rose 0.2% from July to August, following a 0.1% increase from June to July.
The report arrived the same day new BEA methodology changes for calculating the PCE index took effect. The bureau adjusted how it measures spending on portfolio management, legal services and computer software, though it remains unclear how those changes affected the latest numbers.
The August figures came in below forecasts from the Federal Reserve Bank of Cleveland, which had projected annual inflation of 3.7% and core inflation of 3.4%.
In July, the closely watched metric showed prices up 3.7%, matching June’s reading. Inflation has now stayed above the Fed’s 2% target for more than five years and has climbed this year amid the Iran war.
Even with the dip, some economists aren’t celebrating. Navy Federal Credit Union chief economist Heather Long said the data “confirm progress on cooling inflation has stalled.”
“The trend line is clear: Inflation — even Core PCE — remains stuck at 3% (or more). Annual revisions made the numbers look a little cooler, but it didn’t change the trend,” Long wrote Wednesday on X.
Robin Brooks, a senior fellow at the Brookings Institution, saw it differently, arguing on X that the “dovish” PCE reading takes an October rate hike “off the table.”
The consumer price index also showed annual inflation at 3.4% in August.
Earlier this month, the Federal Open Market Committee (FOMC) responded to stubborn inflation by raising interest rates a quarter point, to a range of 3.75% to 4%.
“The plain fact is that inflation is too high and has been for too long,” Fed Chair Kevin Warsh said following the unanimous vote. “This summer’s inflation readings do not tell me that underlying trends have meaningfully improved.”
Since then, multiple FOMC officials have predicted further hikes, with the committee scheduled to meet again Oct. 27-28.
Philadelphia Fed President Anna Paulson said last Thursday that economic conditions warrant “modest further tightening” if they continue.
Fed board member Michael Barr also said last week that “further policy adjustments” are likely needed to rein in inflation, repeating that message Tuesday.
“Risks to achieving our inflation target have increased, while risks to the labor market have receded, so we need to recalibrate policy to get us in a better position that more evenly balances risks to both components of our dual mandate,” Barr told the Detroit Economic Club.
Traders are pricing in a 47.1% chance of a quarter-point hike in late October, according to the CME FedWatch tool.
New York Fed President John Williams struck a more measured tone Tuesday, saying the central bank should keep evaluating data before deciding on another increase.
“With the policy action we took at our September meeting, there is no need for urgency, and we have time to gather more information,” Williams said at the University of Buffalo.
Still, Williams noted that “one further upward adjustment” to the federal funds range may be needed this year if the economy “evolves in a manner broadly consistent” with his expectations.
Following its late-October meeting, the FOMC will convene once more in early December before the calendar turns to 2027.
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