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watch nowVIDEO02:02Fed’s preferred gauge showed core inflation at 3.0% in August, much lighter than expectedSquawk Box
Consumer prices posted a smaller than expected increase in August from a year ago, according to the Federal Reserve’s primary inflation gauge, the Commerce Department reported Wednesday.
The personal consumption expenditures price index increased a seasonally adjusted 0.3% for the month, putting the 12-month gain at 3.4%. Economists surveyed by Dow Jones had been looking for increases of 0.3% and 3.7% respectively.
Excluding food and energy, PCE posted a 0.2% increase that put the annual core level at 3%. The respective forecasts were for 0.3% and 3.3%.
Though the Fed officially follows the headline PCE number, officials generally consider core a better gauge of longer-term trends.
While the annual increases were less than expected, they came as the Bureau of Economic Analysis adjusted the way it computes several components of the index. It was not immediately clear what impact the revisions had on the final numbers.
Stock market futures gained ground following the report while Treasury yields were negative. Traders prices in less of a chance of a Fed rate hike in October, pushing the next expected increase to December.
“This is good news for investors worried about the recent surge in bond yields, and it bolsters the case for not hiking in October,” said David Russell, global head of market strategy at TradeStation. “However, it’s also relatively old data at this point that doesn’t reflect this month’s surge in diesel prices.”
The report also showed that personal income rose 0.2% while spending increased 0.9%, against the respective consensus for 0.4% and 0.8%.
Both levels are still considerably higher than the central bank’s 2% target, raising the possibility that the Fed will follow up its September interest rate hike with another increase at either of its remaining meetings this year in October or December.
Energy costs were the primary culprit for the price increase in August, though multiple other sectors also showed gains. Gasoline jumped 4.4% and transportation services accelerated by 1.4%. Energy goods and services rose 2.3%.
Goods and services prices both posted 0.3% increases.
In other economic news Wednesday, the Commerce Department reported that gross domestic product increased at a 2.2% annualized rate in the second quarter, according to the final of three estimates. That was up sharply from the prior estimate of 1.5% and reflected greater contributions from consumer and government spending as well as investment.
Real final sales to private domestic purchasers, a metric Fed officials watch closely to gauge underlying demand in the economy, increased 4.6%, an upward revision of 0.4 percentage point.
Inflation measures for the April-through-June period also were slightly lower, with headline PCE prices rising 5% and core at 3.3%, each 0.3 percentage point below the prior estimate.
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