US PCE inflation rises less than expected in August
US inflation rose less than economists expected in August, a reading that could prompt financial markets to further reduce the odds of another interest rate increase from the Federal Reserve next month. The Personal Consumption Expenditures (PCE) Price Index rose 0.3 per cent last month after a downwardly revised 0.1 per cent gain in July, the Commerce Department's Bureau of Economic Analysis said on Wednesday. Economists polled by Reuters had forecast a 0.4 per cent rise. In the 12 months through August, PCE inflation advanced 3.4 per cent, unchanged from a downwardly revised 3.4 per cent in July; the July figure was previously reported at 3.7 per cent.
Core PCE, which excludes volatile food and energy components, climbed 0.2 per cent over the month after a downwardly revised 0.1 per cent rise in July, and was up 3.0 per cent year on year following a downwardly revised 3.0 per cent the previous month. Underlying inflation had initially been estimated at 3.3 per cent for the 12 months through July. The Bureau of Economic Analysis said it had changed its methodology for calculating prices for software and accessories, portfolio management fees and legal services, and revised the inflation data back to 2021. The Fed tracks the PCE price measures against its 2 per cent inflation target.
Separately, the US goods trade deficit widened sharply in August amid a surge in imports, a result the Commerce Department's Census Bureau said suggests trade could remain a drag on economic growth in the third quarter. The goods shortfall increased 11.5 per cent to $132.6 billion last month, against a Reuters poll forecast of $115.0 billion. Goods imports rose $17.4 billion, or 5.5 per cent, to $336.1 billion, driven by a 16.6 per cent jump in industrial supplies, which include petroleum; capital goods imports rose 4.0 per cent amid an AI infrastructure build-out, while consumer goods imports fell 1.6 per cent. Goods exports advanced $3.7 billion, or 1.9 per cent, to $203.4 billion, even as consumer goods shipments dropped 10.5 per cent and exports of motor vehicles and parts fell 6.9 per cent.
Trade has subtracted from gross domestic product for three straight quarters, although the Census report showed wholesale inventories rose 0.7 per cent in August and stocks at retailers climbed 0.3 per cent, which could blunt part of the hit. Attention now turns to the Labour Department's Bureau of Labour Statistics employment report on Friday. Job growth likely slowed in September and the unemployment rate is forecast to have been 4.1 per cent for a third straight month, suggesting the labour market remained stable heading into the fourth quarter. The anticipated moderation would follow a surprise jump in non-farm payrolls in August, which economists partly attributed to volatility linked to the model the government uses to strip out seasonal fluctuations from the data.
