Consumer spending rose in August, despite slowing prices

The July data was revised upwards to show an increase in spending of 0.9% instead of the 0.8% previously reported. Economists consulted by Reuters had predicted that spending would increase by 0.4%, so the figure was much higher than expected.

Part of last month’s increase in spending was due to rising pricesalthough core inflation moderated and the year-on-year increase in prices, excluding food and energy, slowed to less than 4% in the same month.

And gasoline prices accelerated in August, reaching a maximum of $3.984 per gallon in the third week of the month, the highest this year, according to data from the United States Energy Information Administration. The figure contrasts with the $3.676 per gallon for the same period in July.

Gasoline prices influenced inflation

With the increase in the price of gasoline, inflation measured by the price index of personal consumption expenditures (PCE) increased by 0.4% in August, after 0.2% in July. In the 12 months to August, the PCE price index advanced 3.5%, up slightly from 3.4% in July. Annual PCE inflation is also being favored by a lower comparison base than last year.

This is key data for the markets as the Federal Reserve (Fed), the US central bank, follows PCE price indices for its 2% inflation target. Last week, the Federal Reserve held interest rates steady but tightened its monetary policy stance. Since March 2022, the central bank has raised its official rate by 525 basis points, bringing it to the current range of 5.25%-5.50%.

But the underlying inflationary pressures are easing, which will be well received by the Federal Reserve authorities. Excluding the volatile food and energy components, the PCE price index rose 0.1%, after rising 0.2% the previous month. The so-called underlying PCE price index increased 3.9% year-on-year in August, after rising 4.3% in July.