Personal Consumption Expenditure Metric Suggests Inflation iin August was Higher Than Expected

While it may not be all that surprising to most, August registered stronger inflation levels than analysts had originally expected. This is in spite of accelerated efforts from the Federal Reserve bank to temper prices to help consumers.

According to recently released data from the central US bank, personal consumption expenditures (PCE) rose by a notable 0.6 percent in the month of August. This metric—which does not include basics like food and energy—was flat in July. More importantly, the current rate of growth is faster than the 0.5 percent estimated by the Dow Jones. Of course, then, this is indicative of broader inflation than we had hoped.

Specifically, core PCE is up 4.9 percent on a year-over-year basis. This is also higher than the estimated 4.7 percent from financial analysts, which is the same measure from the previous month.

While the core PCE was up, headline PCE—which DOES include energy costs—increased by 0.3 percent last month. To put this in perspective, keep in mind that headline PCE was actually down -0.1 percent, in July.

Looking at both figures the Fed generally favors one over the other. Indeed, the central bank prefers to monitor core PCE numbers as the broadest indicator of price movement as a factor that adjusts along with consumer behavior. Overall, though, the United States Department of Commerce found that inflation is holding strong much higher than the 2 percent target set by the Fed.

On the other hand, outside of inflation the data show personal incomes and spending are both on the rise. For one, personal incomes rose by 0.3 percent in August, which is not only the same as July but also maintained the estimate. Spending, on the other hand, is up 0.4 percent after having fallen 0.2 percent in July. Most importantly, spending beat the 0.3 percent analysts had expected. After-tax income crept up by 0.1 percent, a much slower increase than the 0.5 percent in July. Similarly, spending—after adjusting for inflation—is also up only 0.1 percent.

Effectively, these numbers simply tell us that we may not have as much control over inflation as we would like. In time things may settle down again, but for now, the Fed may need to be more vigilant in their policies.