Key inflation indicator stays stubbornly at 30-year high
A key inflation indicator remained stubbornly at a 30-year high in August, defying expectations that price pressures would start to drift lower.
Instead, they ticked 3.6 percent higher last month when compared to the same time last year, stoking worries that inflation could become entrenched — or even start to spiral out of control.
The Commerce Department’s core personal consumption index, or core PCE, which excludes sometimes-volatile food and energy costs, matched the rate reported in July, which was the biggest annual jump in 30 years.
Economists surveyed by Dow Jones were expecting to see a 3.5 percent year-over-year increase in the core PCE.
The new data affirmed the general thinking about the state of the economy on Wall Street, said Matt Peron, director of research at Janus Henderson Investors.
“Today’s releases were more or less in line with the narrative that the economy and consumer are strong, but the pressures in the supply chain are having a significant, but not game-changing, effect in limiting supply and capping growth. This also could be providing continued upward pressures on prices,” he said.
The same pressures in the economy during the reopening could persist through the first half of 2022, he added.
The core index rose 0.3 percent from July, also matching the prior month’s increase, the Commerce Department reported.
The index tracks prices across a variety of goods and services and is considered a broader measure for inflation than the Labor Department’s Consumer Price Index, which rose 5.3 percent in August from a year ago.
The core PCE index is the Federal Reserve’s preferred measure against its 2 percent inflation target. Last week, the Fed raised its core CPE inflation projection for the year to 3.7 percent, up from 3 percent it estimated in June.
Including food and energy, the Commerce Department’s index jumped 4.3 percent from a year ago, up from 4.2 percent in July and the highest reading since 1991.
That figure was up 0.4 percent from July to August, the report said.
Even as prices rose in the economy, consumer spending also surged more than expected, the Commerce Department added.
Consumer spending, which accounts for more than two-thirds of US economic activity, rebounded 0.8 percent in August after dipping 0.1 percent in July, according to revised figures released Friday.
Economists polled by Reuters had expected to see spending rise just 0.6 percent for the month.
The overall increase in spending came despite a decrease in purchases of cars and auto parts, the feds said, as those sectors are hammered by an ongoing shortage of semiconductor chips that have forced automakers to hike prices substantially.
Spending on meals, hotels and airline tickets also dropped as COVID-19 cases rose this summer due to the Delta variant.
Personal income increased 0.2 percent in August, after surging 1.1 percent in July thanks in part to government-enhanced tax breaks for parents.
The rise in income reflected recent wage growth for many Americans amid the nationwide labor shortage, as well as the monthly Child Tax Credit payments, the Commerce Department said.