Personal Consumption Expenditures: Gas prices drove inflation higher last month, but there is also welcome progress from the Fed

Minneapolis
CNN
—

Rising gas prices sent overall inflation soaring last month, but the Federal Reserve got some good news: Its favored measure of inflation fell to its lowest level in two years.

The core personal consumption expenditures index, a closely watched measure of inflation that excludes gas and food prices, rose 3.9% during the 12 months ending in August. It’s the smallest annual increase the index has seen in two years and is a positive step toward the Fed’s target of 2% inflation, according to Commerce Department data released Friday.

On a monthly basis, the core personal consumption expenditures index grew by 0.1%, the slowest month-on-month increase since a 0.3% decline in April 2020.

“On inflation, this is an overall positive report for those hoping for progress in the Fed’s fight to get back to 2%,” Andrew Patterson, chief economist at Vanguard, told CNN.

Since March 2022, the US central bank has raised the federal funds rate to its highest level in decades in an attempt to reduce the highest inflation rate in more than 40 years.

The overall personal consumption expenditures index, which includes the more volatile food and energy categories, rose 0.4%. From July And 3.5% annually. This represents an acceleration from the rates of 0.2% and 3.4%, respectively, seen in July. However, it was also largely expected: Gas prices rose last month also. Prices for energy goods and services rose 6.1% in August compared to July, according to the report.

Economists estimated that the headline personal consumption expenditures index would rise by 0.5% per month and 3.5% per year, according to Refinitiv.

High energy costs may continue to put upward pressure on inflation. Earlier this month, oil prices then rose further Saudi Arabia and Russia It announced plans to extend production cuts.

“Energy prices eventually trickle down to all other costs,” Patterson said. “That’s certainly a concern on the Fed’s part. We don’t want to see a flat $90 [a barrel] Oil prices.”

Latest personal income and expenses for the Department of Commerce a report It also showed that consumers pulled back on spending in August, rising 0.4% versus an upwardly revised 0.9% increase in July. Income increased by 0.4%.

The personal saving rate, which is saving as a percentage of disposable income, fell for the third straight month and fell to 3.9% from an upwardly revised 4.1% in July. As such, savings have now reached their lowest level since December last year.

Americans’ financial reserves are declining at a time when headwinds are intensifying.

Credit card debt is rising in an environment of historically high interest rates, delinquencies are on the rise, the labor market is slowing and wage growth is moderating.

“All of these things are coming together to form what we think will be a material slowdown in consumer spending,” Dana Peterson, chief economist at the Conference Board, told CNN in an interview. Earlier this week, the Conference Board reported as much Consumer confidence declined to its lowest levels in four months.

Within days, student loan payments will resume after years of forbearance.

“This will affect people who are 45 and under, and those are the years of peak income and peak spending,” she said. “All of a sudden, if you get those payments back, it takes away any discretionary income you might have. It also delays life cycle milestones like being able to buy a house or buy a car or save for retirement.”

“All of these things are, slowly but surely, eroding the strength we’ve seen in consumer spending over the past year,” she added.

The Department of Commerce’s monthly personal income and expenditure reports are typically closely watched because they provide a comprehensive accounting of price, income, and spending data.

However, Friday’s report could carry additional significance. If the US government actually did that close As of October 1, the Commerce Department report may be the last major piece of federal economic data released until an agreement on financing is reached.

This will be the case for Americans, economists and markets, especially the Fed Virtually flying blind At a critical juncture for the economy.

In the event of a shutdown, the first federal reports to be delayed will include key labor market data, specifically the August job openings and labor turnover survey report scheduled for Tuesday, and the September jobs report scheduled for Friday. Under the Ministry of Labour Emergency planAll 2,350 BLS employees will be furloughed.

So, depending on the length of the shutdown, this could extend and impact other BLS reports such as the Consumer Price Index, Producer Price Index, real earnings, and U.S. import and export price indexes, according to the plan. Labor Department officials noted that if the CPI is delayed, it would impact the Social Security Administration’s planned 2024 cost-of-living adjustment.

Other federal data at risk of delay could include key housing and auto sales data, Census Bureau data, and personal consumption expenditures and gross domestic product reports, among others.

“We’ve been saying for some time that we will get a better understanding of the real trends in inflation and the labor market this fall and winter, which could have very real implications for our views on policy and the economy. The actual actions of Fed policy Federalist.

“Unfortunately, if we don’t have that data, or it’s delayed, it will have implications for interpreting the direction of the economy.”