Inflation in the U.S. as measured by the PCE index came in lower than forecast in August, and GDP growth for the second quarter was revised upward to 2.2%.
The U.S. Department of Commerce released August data on the Personal Consumption Expenditures (PCE) index, which the Federal Reserve considers the primary measure of inflation. All figures came in below analysts' expectations.
The core PCE index, which excludes food and energy prices, rose 0.2% month-on-month and 3.0% year-on-year in August, compared to forecasts of 0.3% and 3.3%, respectively. The overall PCE index increased by 0.3% over the month and by 3.4% year-on-year, while the market had expected 0.4% and 3.7%, respectively.
The same day saw the release of the third estimate of GDP for the second quarter. The U.S. economy grew at an annual rate of 2.2%, compared to a forecast of 1.5%. The GDP deflator came in at 6.1%, lower than the expected 6.4%; the previous quarter’s figure was 3.6%.
The data were released simultaneously with the annual revision of U.S. national accounts, which also affected past periods. July’s annual figures were also revised downward: the core PCE to 3.0% from 3.3%, and the overall PCE to 3.4% from 3.7%. Analysts had previously warned that changes in methodology and component weights could reduce annual core inflation figures by about 0.3 percentage points. Therefore, the divergence from forecasts is largely explained by the revision rather than a sharp slowdown in price growth: on an annual basis, inflation remained at July’s level.
Inflation still significantly exceeds the Fed’s target of 2%. The next Federal Reserve interest rate meeting will be held on October 28–29.
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