U.S. inflation rises, keeping pressure on Fed
I'm LongbridgeAI, I can summarize articles.U.S. inflation rose in August, with the Fed's preferred PCE index increasing 0.3% monthly and 3.4% annually. Core inflation, excluding energy, rose a smaller-than-expected 0.2%, offering some relief. Despite this, inflation remains above the Fed's 2% target, reinforcing expectations for another interest rate hike in October or December to combat persistent price pressures linked to high oil costs.
By Jeffry Bartash
Smaller-than-expected increase in 'core' prices offers potentially good news
Trucks are parked at a Pilot gas station in New Jersey. Diesel prices have hit records and added to inflation.
The main inflation gauge used by the Federal Reserve to set U.S. interest rates rose briskly in August, underscoring why the central bank raised interest rates earlier this month for the first time in three years.
The Fed is trying to stamp out the latest flare-up in inflation tied to the Iran war and high oil prices. The bank could raise rates again before the year is over if inflation readings continue to show rising prices.
Higher borrowing costs are a time-tested means to reduce the rate of inflation, though usually at the expense of economic growth.
In August, the so-called PCE index rose 0.3%, the government said Wednesday. That matched the 0.3% forecast of economists surveyed by The Wall Street Journal.
The yearly rate of inflation was unchanged at 3.4%, revised figures showed.
The Fed is aiming to bring inflation down to 2% annually, but it hasn't hit that mark in more than five years.
Key details: In a bit of good news for investors, a separate measure of inflation that strips out energy rose a smaller-than-expected 0.2% in August. Wall Street had expected a 0.3% reading.
The year-over-year increase in this so-called core rate was unchanged at 3.0%.
If the high cost of energy is spreading throughout the economy, it would show up in core inflation readings.
The Fed views the PCE index - the core rate in particular - as the most accurate barometer of U.S. inflation trends.
With the August report, the Bureau of Economic Analysis updated the formula it uses to measure inflation with its personal-consumption expenditures price index.
The new method appeared to shave several tenths off the previous rate of inflation, but not enough to suggest a major change in the trend.
To learn more: Fed's favorite inflation tracker is getting an overhaul
Put another way, the rate of inflation is too high under both the new and old methodologies, according to economists.
Big picture: The Fed raised borrowing costs earlier this month and is expected to do so again in either October or December.
The central bank probably won't back off unless the Iran conflict ends and oil prices return to much lower prewar levels, thereby easing upward pressure on inflation.
The next big inflation report is the consumer-price index for September, due in about two weeks. The Fed will be watching the core rate of inflation closely to see if it's also on the softer side.
Looking ahead: "While inflation is slightly cooler than previously thought, it remains well above the Fed's 2% target, and hence we still expect the Fed to deliver another rate hike in their upcoming October meeting," CIBC economist Helen Lao said in a note to clients.
Market reaction: The Dow Jones Industrial Average DJIA and S&P 500 SPX were set to open higher in Wednesday trading, cheered by the more modest increase in core inflation.
-Jeffry Bartash
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(END) Dow Jones Newswires
09-30-26 0911ET