Fed's Favored Inflation Gauge Ticks Slightly Higher

The Federal Reserve's favored inflation gauge accelerated slightly in August from a year earlier. The Commerce Department reported Friday that its personal consumption expenditures (PCE) price index was up 2.7% in August from a year earlier, a tick higher from a 2.6% year-over-year increase in July and the most since February, the AP reports. Excluding volatile food and energy prices, so-called core PCE inflation showed a 2.9% increase in prices from August 2024, same as in July. The increases were what forecasters had expected and the figures are unlikely to change expectations for more interest rate cuts, CNBC reports. Prices rose 0.3% from July, compared to a 0.2% increase the month before. Core prices rose 0.2%, same as in July.

• The Fed tends to favor the PCE inflation gauge that the government issued Friday over the better-known consumer price index. The PCE index tries to account for changes in how people shop when inflation jumps. It can capture, for example, when consumers switch from pricier national brands to cheaper store brands.

Inflation has come down since rising prices prompted the Fed to raise its benchmark interest rate 11 times in 2022 and 2023. But annual price gains remain stubbornly above the central bank's 2% target. Last week, the Fed went ahead and reduced the rate for the first time this year, lowering borrowing costs to help a deteriorating US job market. But it's been cautious about cutting, waiting to see what impact President Trump's sweeping taxes on imports have on inflation and the broader economy. For months, Trump has relentlessly pushed the Fed to lower rates more aggressively, calling Fed Chair Jerome Powell "Too Late" and a "moron" and arguing that there is "no inflation."

Separately, the report showed that consumer spending rose 0.4% from July, largely on a 0.7% increase in spending for goods; spending on services such as travel and dining out rose just 0.2%. "Consumers literally hit it out of the park with very strong gains in spending not just for August, but June and July as well," Chris Rupkey, chief economist at Fwdbonds, tells CNBC. "Summer was the time for consumer revenge spending after hunkering down in retreat from the shops and malls during the uncertainty and fear produced by the White House tariff rollout in April and May."