The Federal Reserve’s primary inflation rate showed that core price pressures cooled further in August, while headline inflation was lifted by rising energy prices. The S&P 500 opened higher but failed to hold onto its gains. Other data revealed that personal spending moderated in August after a burst of spending in June and July. The personal consumption expenditures (PCE) price index rose 0.4% in August, with the annual inflation rate increasing to 3.5% from 3.3% in July. However, core prices only rose 0.1% in August, and the core 12-month inflation rate eased to 3.9% from 4.2% in July. This is the lowest reading since September 2021. Wall Street economists had expected a 0.2% monthly increase in the core PCE price index and a 0.5% overall gain.
The recent data revisions released by the Commerce Department showed an even more dramatic disinflationary trend. The core PCE inflation rate is running at just 2.1% on a 3-month annualized basis, down from 2.7% in July. Federal Reserve chair Jerome Powell stated that he would like to see six months of tame inflation data before the current trend gains confidence from policymakers. However, the 6-month annualized core PCE inflation rate eased to 2.9% in August from 3.4% in July. Personal income and consumption expenditures both rose 0.4% in August, although consumer spending adjusted for inflation only increased by 0.1%.
The Federal Reserve has been focusing on core PCE services excluding housing, or supercore services, due to their belief that the tight labor market and wage growth have contributed to high inflation. In August, prices for these services rose by 0.14%, following a 0.47% increase in July. The annual inflation rate for these core services eased to 4.4% from 4.75%. After the release of the PCE inflation report, the market predicted only a 12.5% chance of a quarter-point Fed rate hike on November 1 and a 33% chance of a hike by the December 13 policy update. The S&P 500 initially opened higher but eventually traded down 0.1% in the early afternoon. The 10-year Treasury yield experienced fluctuations as inflation fell, and it was at 4.56% by the end of the day.