The Federal Reserve’s preferred measure of inflation cooled in August, adding another layer of complexity to the monetary policy debate for rate setters.
Data from the Bureau of Economic Analysis showed the core PCE price index rose 0.2% m/m in August, unchanged from July. On the year, core inflation slowed to 3.0%, below both the 3.3% forecast and previous reading.
BMO Capital’s Val Hartman said the key takeaway from Wednesday’s data was that the BEA’s annual benchmark revisions lowered the Fed’s preferred inflation gauge by more than expected.
“Not only did the BEA revisions have a more negative impact than anticipated on the last several months of inflation data, but August's core-PCE gain was also softer-than-expected at 0.247% compared to the ‘unofficial’ consensus of 0.27%,” Hartman noted.
The revisions, stretching back to 2021, were driven largely by computer software and accessories, as well as portfolio management and investment advisory services, both of which have been important contributors to inflation this year.
Headline PCE rose 0.3% m/m, in line with forecasts and a tenth higher than July. On the year, the index increased 3.4%, below the 3.7% estimate and previous reading.
Source: US Bureau of Economic Analysis
Resilient households feeling the strain
Elsewhere, personal income rose just 0.2% m/m against expectations for a 0.5% increase and a revised 0.3% prior reading. Personal spending accelerated 0.9%, matching forecasts and up sharply from 0.1% previously, marking its strongest increase since December 2024.
The third and final estimate of second-quarter GDP showed the economy expanded 2.2% q/q, an upgrade from the previous 1.5% estimate.
“Households pinched by higher prices have been either reducing their monthly savings rate or relying more on credit,” said Nationwide chief economist Kathy Bostjancic. “The strong consumer spending coupled with ebullient AI investment likely lifted real GDP growth to above 3% in Q3.”
Bostjancic added that household spending was likely to moderate to around 2% in Q4 as higher energy prices and borrowing costs weighed on consumers, although both spending and the broader economy should continue to post solid gains.
Republican lawmakers were quick to highlight the fall in inflation. House Ways and Means Committee Chairman Jason Smith said oil exports from the Middle East were estimated to have recovered to 94% as US military efforts helped stabilise the Strait of Hormuz, which he said was beginning to bring down petrol prices.
Smith also pointed to new agreements with China, saying they would expand opportunities for US farmers while reducing prices for products with little or no domestic competition.
Softer figures unlikely to deter policymakers
Markets initially welcomed the softer core PCE reading, with US 10-year Treasury futures rising to session highs. However, the move quickly reversed, and, by midday US time, the 10-year yield had surged to 5.304%, above its 2007 peak and its highest level since May 2002.
Nigel Green, CEO at deVere, cautioned against interpreting the data as a signal that the Fed could step away from further tightening.
“Anyone treating today’s numbers as a green light for the Fed to stand down is, we expect, going to be making a big mistake. Headline inflation at 3.4% is still miles above target, and a good chunk of the drop in core comes from statisticians changing their sums. We said after September’s hike it wouldn’t be the last one this year, and we’re sticking with that call.”
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- Core PCE slows to 3.0% y/y from 3.3% prior
- BEA revisions lower recent inflation profile
- Consumer spending jumps 0.9% in August
- Treasury yields higher despite softer print
By Harry Daniels
LiveSquawk News
@HarryDaniels71
17:00 GMT | 30 September 2026
The Federal Reserve’s preferred measure of inflation cooled in August, adding another layer of complexity to the monetary policy debate for rate setters.
Data from the Bureau of Economic Analysis showed the core PCE price index rose 0.2% m/m in August, unchanged from July. On the year, core inflation slowed to 3.0%, below both the 3.3% forecast and previous reading.
BMO Capital’s Val Hartman said the key takeaway from Wednesday’s data was that the BEA’s annual benchmark revisions lowered the Fed’s preferred inflation gauge by more than expected.
“Not only did the BEA revisions have a more negative impact than anticipated on the last several months of inflation data, but August's core-PCE gain was also softer-than-expected at 0.247% compared to the ‘unofficial’ consensus of 0.27%,” Hartman noted.
The revisions, stretching back to 2021, were driven largely by computer software and accessories, as well as portfolio management and investment advisory services, both of which have been important contributors to inflation this year.
Headline PCE rose 0.3% m/m, in line with forecasts and a tenth higher than July. On the year, the index increased 3.4%, below the 3.7% estimate and previous reading.
Elsewhere, personal income rose just 0.2% m/m against expectations for a 0.5% increase and a revised 0.3% prior reading. Personal spending accelerated 0.9%, matching forecasts and up sharply from 0.1% previously, marking its strongest increase since December 2024.
The third and final estimate of second-quarter GDP showed the economy expanded 2.2% q/q, an upgrade from the previous 1.5% estimate.
“Households pinched by higher prices have been either reducing their monthly savings rate or relying more on credit,” said Nationwide chief economist Kathy Bostjancic. “The strong consumer spending coupled with ebullient AI investment likely lifted real GDP growth to above 3% in Q3.”
Bostjancic added that household spending was likely to moderate to around 2% in Q4 as higher energy prices and borrowing costs weighed on consumers, although both spending and the broader economy should continue to post solid gains.
Republican lawmakers were quick to highlight the fall in inflation. House Ways and Means Committee Chairman Jason Smith said oil exports from the Middle East were estimated to have recovered to 94% as US military efforts helped stabilise the Strait of Hormuz, which he said was beginning to bring down petrol prices.
Smith also pointed to new agreements with China, saying they would expand opportunities for US farmers while reducing prices for products with little or no domestic competition.
Markets initially welcomed the softer core PCE reading, with US 10-year Treasury futures rising to session highs. However, the move quickly reversed, and, by midday US time, the 10-year yield had surged to 5.304%, above its 2007 peak and its highest level since May 2002.
Nigel Green, CEO at deVere, cautioned against interpreting the data as a signal that the Fed could step away from further tightening.
“Anyone treating today’s numbers as a green light for the Fed to stand down is, we expect, going to be making a big mistake. Headline inflation at 3.4% is still miles above target, and a good chunk of the drop in core comes from statisticians changing their sums. We said after September’s hike it wouldn’t be the last one this year, and we’re sticking with that call.”