The Federal Reserve's battle against inflation appears to be gaining traction, according to economic indicators released on Friday. The central bank's preferred measure of price growth, the core personal consumption expenditures (PCE) index, showed a less-than-expected increase in August, signaling progress in curbing higher prices.
For the month of August, the PCE price index, excluding food and energy, rose by 0.1%, falling short of the anticipated 0.2% gain predicted by a Dow Jones consensus of economists. This information was disclosed by the Commerce Department on Friday. On an annual basis, the core PCE increase matched the forecast at 3.9%.
This figure indicates a return to a downward trend after a summer setback when the inflation metric climbed to 4.2% in July from 4.1% in June. The core PCE deflator is expected to have risen 3.9% in August from a year earlier, marking its lowest level since September 2021, according to a survey of economists by FactSet.
Consumer spending also saw an increase, albeit modest, rising 0.4% on a current-dollar basis. This figure represents a sharp decline from the 0.9% increase recorded in July. In real terms, spending was up by just 0.1%, following a rise of 0.6% in July.
When food and energy are included, the headline PCE increased by 0.4% for the month and 3.5% from a year ago.
The Federal Reserve had signaled on September 20 that interest rates may need to rise further to combat inflation effectively. The latest figures are likely to be seen as a reassuring sign for markets given the anxiety over the outlook for interest rates.
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