US economy: Consumer spending grows in Aug, underlying inflation eases

The Commerce Department reported a 0.4% increase in consumer spending last month, a revision from the initially reported 0.8% rise in July.

Economists surveyed by Reuters had anticipated a 0.4% increase.

The upswing in spending in August was partly due to higher prices, particularly in gasoline, which reached a peak of $3.984 per gallon in the third week of the month, marking the highest point for the year according to the U.S. Energy Information Administration.

This contrasted with $3.676 per gallon in July during the same period.

The surge in gasoline prices led to a 0.4% rise in inflation, as measured by the personal consumption expenditures (PCE) price index, in August.

This follows a 0.2% increase in July. Over the 12 months leading up to August, the PCE price index showed a 3.5% increase, slightly up from a 3.4% rise in July.

This upward trend in annual PCE inflation is influenced by a lower base of comparison from the previous year.

However, there are signs of easing underlying inflation pressures, which is likely to be viewed positively by Federal Reserve officials, according to the Reuters report.

Excluding the volatile food and energy components, the PCE price index saw a modest 0.1% gain, compared to a 0.2% increase in the preceding month.

The core PCE price index, which excludes food and energy, showed a 3.9% rise on a year-on-year basis in August, slightly down from a 4.3% increase in July.

The U.S. central bank closely monitors the PCE price indexes to gauge progress toward its 2% inflation target.

The Fed opted to keep interest rates steady last week but took a more assertive stance on monetary policy.

Since March 2022, the central bank has increased its policy rate by 525 basis points, bringing it to the current range of 5.25%-5.50%.
Image Credit and Caption: