- Core PCE deflator seen rising 0.3% m/m, 3.5% y/y - CPI and PPI point to persistent price pressures - Methodology changes cloud estimates - Revisions could reshape the inflation picture
US inflation data at the start of September appeared sufficient to push the Federal Reserve beyond its tolerance threshold, with this week’s figures expected to validate the central bank’s mid-month rate hike.
The latest economist poll forecasts headline PCE prices rising 0.3% m/m in August, up one-tenth from July, with the annual rate seen unchanged at 3.7%.
Core PCE, the Fed’s preferred underlying inflation gauge, is also expected to rise 0.3% m/m, up one-tenth from July, while the annual rate is seen matching July’s 3.5% pace.
Personal income is estimated to have risen 0.5% in August, with real personal spending also up 0.5%. Total personal spending is seen increasing 0.8%, versus 0.2% in July.
Persistent price pressures
Earlier this month, US headline CPI rose 0.4% m/m in August, in line with expectations and up from 0.1% in July, while the annual rate held at 3.4%. Core CPI increased 0.3% m/m, up one-tenth from July, although the annual rate eased to 2.4% from 2.5%.
Headline PPI rose 0.4% m/m, matching expectations and accelerating from July’s 0.1% increase, while annual producer-price inflation reached 5.4%. Core PPI rose 0.2% m/m, below the 0.3% consensus and the previous reading.
Barclays economist Pooja Sriram said the bank estimates August core PCE inflation at 0.25% m/m and 3.4% y/y.
BEA methodology changes add forecast uncertainty
CPI and PPI details usually provide a reliable benchmark for estimating core PCE. However, the Bureau of Economic Analysis has announced changes to its methodology as part of its annual update to gross domestic product and related statistics, without disclosing all the details. Analysts said the changes would make translating CPI and PPI more uncertain than usual.
Deutsche Bank analysts said the methodology changes would likely revise July’s year-over-year rate down by two to three tenths, from 3.34% to around 3.0%-3.1%, depending on the specifics. They attributed most of the move to downward revisions of earlier readings in the 12-month lookback window. “Indeed, the methodology changes could yield a couple basis points of upward revisions to more recent prints,” the bank added.
Fed speakers to shape the rate outlook
With a full slate of Fed officials due to speak this week, markets should get a clearer sense of policymakers’ appetite for further rate hikes.
During the press conference following the announcement on 16 September, Fed Chairman Kevin Warsh described the 25bp hike to 3.75%-4.00% as the “right decision” and as removing “a dose of accommodation,” rather than launching a predetermined tightening cycle. However, he added that inflation was “too high and has been for too long,” summer readings had not shown meaningful improvement in underlying inflation, and broad financial conditions were difficult to describe as restrictive.
Fed governor Michael Barr, speaking on 29 September, stated that he did not yet see a clear trend back toward 2% inflation and that the US had been “knocked off course.” He cited energy prices and AI-related investment demand as sources of price pressure, while describing growth and the labour market as solid.
Deutsche concluded that although several Fed officials are set to speak throughout the week, most had already been heard from in the wake of the September FOMC meeting, and therefore it expected little change in the rhetoric.
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- Core PCE deflator seen rising 0.3% m/m, 3.5% y/y
- CPI and PPI point to persistent price pressures
- Methodology changes cloud estimates
- Revisions could reshape the inflation picture
By Harry Daniels
LiveSquawk News
@HarryDaniels71
17:00 GMT | 29 September 2026
US inflation data at the start of September appeared sufficient to push the Federal Reserve beyond its tolerance threshold, with this week’s figures expected to validate the central bank’s mid-month rate hike.
The latest economist poll forecasts headline PCE prices rising 0.3% m/m in August, up one-tenth from July, with the annual rate seen unchanged at 3.7%.
Core PCE, the Fed’s preferred underlying inflation gauge, is also expected to rise 0.3% m/m, up one-tenth from July, while the annual rate is seen matching July’s 3.5% pace.
Personal income is estimated to have risen 0.5% in August, with real personal spending also up 0.5%. Total personal spending is seen increasing 0.8%, versus 0.2% in July.
Earlier this month, US headline CPI rose 0.4% m/m in August, in line with expectations and up from 0.1% in July, while the annual rate held at 3.4%. Core CPI increased 0.3% m/m, up one-tenth from July, although the annual rate eased to 2.4% from 2.5%.
Headline PPI rose 0.4% m/m, matching expectations and accelerating from July’s 0.1% increase, while annual producer-price inflation reached 5.4%. Core PPI rose 0.2% m/m, below the 0.3% consensus and the previous reading.
Barclays economist Pooja Sriram said the bank estimates August core PCE inflation at 0.25% m/m and 3.4% y/y.
CPI and PPI details usually provide a reliable benchmark for estimating core PCE. However, the Bureau of Economic Analysis has announced changes to its methodology as part of its annual update to gross domestic product and related statistics, without disclosing all the details. Analysts said the changes would make translating CPI and PPI more uncertain than usual.
Deutsche Bank analysts said the methodology changes would likely revise July’s year-over-year rate down by two to three tenths, from 3.34% to around 3.0%-3.1%, depending on the specifics. They attributed most of the move to downward revisions of earlier readings in the 12-month lookback window. “Indeed, the methodology changes could yield a couple basis points of upward revisions to more recent prints,” the bank added.
With a full slate of Fed officials due to speak this week, markets should get a clearer sense of policymakers’ appetite for further rate hikes.
During the press conference following the announcement on 16 September, Fed Chairman Kevin Warsh described the 25bp hike to 3.75%-4.00% as the “right decision” and as removing “a dose of accommodation,” rather than launching a predetermined tightening cycle. However, he added that inflation was “too high and has been for too long,” summer readings had not shown meaningful improvement in underlying inflation, and broad financial conditions were difficult to describe as restrictive.
Fed governor Michael Barr, speaking on 29 September, stated that he did not yet see a clear trend back toward 2% inflation and that the US had been “knocked off course.” He cited energy prices and AI-related investment demand as sources of price pressure, while describing growth and the labour market as solid.
Deutsche concluded that although several Fed officials are set to speak throughout the week, most had already been heard from in the wake of the September FOMC meeting, and therefore it expected little change in the rhetoric.