August PCE Report: PCE Inflation Index Up 2.2%, Softer Than Expected

The August Personal Consumption Expenditures Price Index posted a softer-than-expected increase, up 2.2% from year-ago levels. Economists had forecast that the PCE index would rise 2.7%.

When volatile food and energy costs are factored out, the Federal Reserve’s preferred measure of inflation increased 2.7% from one year ago, in line with expectations.

The PCE Price Index increased 0.1% from month-ago levels. Excluding food and energy, the PCE Price Index also increased 0.1% on a monthly basis.

“The data supports the Fed’s decision to go ahead with federal-funds rate cuts,” says Morningstar senior US economist Preston Caldwell.

August PCE Inflation Report Highlights

• The PCE Price Index rose 0.1% in August, in line with the FactSet consensus forecast and following an increase of 0.2% in July.
• Core PCE rose 0.1% in August, below forecasts for a 0.2% increase and following an increase of 0.2% in July.
• The PCE Price Index year over year rose 2.2% in August, below forecasts for a 2.7% increase and following an increase of 2.5% in July.
• Core PCE year over year rose 2.7% in August, in line with forecasts and following an increase of 2.6% in July.

“Core PCE inflation has averaged 2.1% annualized in the past three months, more or less in line with the Fed’s target,” Caldwell says. “The year over year measure is still slightly elevated at 2.7%. But if current trends persist, the year over year measure will dip to around 2.0-2.2% by the first quarter 2025, as the poor data from the first quarter 2024 rolls off.”

Caldwell notes that compared to the core Consumer Price Index, which was up 0.28% month over month, core PCE came in 15 basis points lower. “Of that, about 10 basis points is attributable to core PCE’s lower weight to housing, which saw continued high inflation in August,” Caldwell says.