U.S. consumer prices rose 3.4% in August from a year earlier while household spending jumped 0.9% from July, the Commerce Department's Bureau of Economic Analysis reported on Wednesday, September 30. The inflation reading matched the revised July rate and came in below economists' 3.7% forecast, according to the Associated Press. The combination showed demand remained strong even as prices stayed well above the Federal Reserve's 2% goal.
The figures come from the personal consumption expenditures, or PCE, report, a price measure closely followed by the Federal Reserve when setting interest rates. The Bureau of Economic Analysis said it also incorporated an annual update of national economic accounts, revising monthly income and spending estimates back to January 2021. The American Bankers Association said the revised July inflation rate was also 3.4%, so the new annual reading did not represent a month-to-month fall in the yearly rate.
Prices increased 0.3% between July and August, compared with 0.1% in the previous month, the federal report showed. Excluding food and energy, the index rose 0.2% on the month and 3.0% over the year. The banking association said the core annual figure was below a 3.3% forecast but unchanged from revised July data. Its analysis attributed part of the lower-than-expected readings to a technical recalculation in the federal statistics.
Consumer spending rose by $190.8 billion in August, or 0.9%, after a 0.1% increase in July, according to the bureau. Spending on goods accounted for $114.1 billion of the August gain and services for $76.7 billion. After accounting for inflation, spending increased 0.6%, indicating that households purchased more rather than merely paying higher prices for the same amount.
Personal income increased 0.2% and disposable income increased 0.3%, but inflation-adjusted disposable income was unchanged in August. The bureau put the personal saving rate at 4.1%. AP reported that U.S. financial markets initially rose after the inflation figures, as traders reconsidered the timing of a possible further Federal Reserve interest-rate increase. The bankers' association cautioned that continuing price pressure could strain household budgets and consumer credit.
The data leave policymakers with evidence of both persistent inflation and resilient consumption. The Federal Reserve has already raised its key rate this month, AP reported, and its next decision will depend on incoming evidence rather than this release alone. The Bureau of Economic Analysis has scheduled its September income and spending report for October 29, when it will provide another reading on prices and household demand.
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