Key inflation indicator remains higher than expected

A key indicator of inflation stubbornly remained at a 30-year high in August, defying expectations that price pressures would begin to ease.

Instead, they rose 3.6% last month compared to the same period last year, stoking fears that inflation is taking hold – or even starting to get out of hand.

The Commerce Department’s Core Personal Consumption Index, or Core PCE, which excludes sometimes volatile food and energy costs, matched the rate reported in July, which was the biggest annual jump in 30 years.

Economists polled by Dow Jones expected a 3.5% year-over-year increase in core PCE.

The new data confirmed the general thinking about the state of the economy on Wall Street, said Matt Peron, director of research at Janus Henderson Investors.

“Today’s releases were more or less consistent with the narrative that the economy and the consumer are strong, but pressures in the supply chain have a significant effect, but not game-changing, limiting the supply and capping growth. It could also lead to continued upward pressure on prices, ”he said.

The same pressures on the economy when reopening could persist until the first half of 2022, he added.

The benchmark index was up 0.3% from July, also matching the previous month’s increase, the Commerce Department reported.

The index tracks the prices of a variety of goods and services and is considered a broader measure of inflation than the Ministry of Labor’s consumer price index, which rose 5.3% in August compared to a year ago.

The core PCE index is the Federal Reserve’s preferred measure of its 2% inflation target. Last week, the Fed raised its core CPE inflation projection for the year to 3.7%, from 3% it had estimated in June.

Including food and energy, the Commerce Department index jumped 4.3% from a year ago, from 4.2% in July and the highest reading since 1991.

That figure rose 0.4% from July to August, according to the report.

Even though prices have risen in the economy, consumer spending has also risen more than expected, the Commerce Department added.

Consumer spending, which accounts for more than two-thirds of US economic activity, rebounded 0.8% in August after falling 0.1% in July, according to revised figures released on Friday.

Economists polled by Reuters had expected spending to rise just 0.6% for the month.

The overall increase in spending came despite a decrease in purchases of cars and auto parts, federal officials said, as those industries are plagued by a persistent shortage of semiconductor chips that has forced automakers to dramatically increase prices. price.

Spending on meals, hotels and airline tickets also fell as COVID-19 cases increased this summer due to the Delta variant.

Personal income rose 0.2% in August, after jumping 1.1% in July, in part thanks to tax breaks granted to parents by the government.

The increase in incomes reflects recent wage growth for many Americans amid the nationwide labor shortage, as well as monthly child tax credit payments, the Department said. Trade.