Consumer prices increased less than anticipated in August, according to the Commerce Department. The personal consumption expenditures price index, the Federal Reserve's primary inflation gauge, rose a seasonally adjusted 0.3 percent for the month, putting the 12-month gain at 3.4 percent.
Economists surveyed by Dow Jones had projected a 0.3 percent monthly increase and a 3.7 percent annual gain for the headline PCE figure. Excluding volatile food and energy components, the core PCE index climbed 0.2 percent in August, with its annual level reaching 3.0 percent. Economists had anticipated a 0.3 percent monthly rise and a 3.3 percent annual core rate.
Both the headline and core PCE levels remain above the Federal Reserve's 2 percent target, but the August slowdown immediately shifted market expectations. Traders priced in a reduced chance of an interest rate hike in October and pushed the next expected increase to December.
The Bureau of Economic Analysis made adjustments to its computation methodology for several index components, including legal services, software and computer accessories, and portfolio management. These revisions lowered the core July PCE level by 0.36 percentage point, affecting the baseline for August's comparison.
Energy costs were a primary driver of price increases in August. Gasoline prices jumped 4.4 percent, and transportation services accelerated by 1.4 percent. Overall energy goods and services climbed 2.3 percent.
David Russell, global head of market strategy at TradeStation, said the lower inflation data "bolsters the case for not hiking in October." He cautioned that the August data is "relatively old" and does not reflect September's surge in diesel prices.
Heather Long, chief economist at Navy Federal Credit Union, said the PCE inflation data "show no progress in August on inflation" and added that September will likely be higher. "American consumers are feeling the squeeze," she said.
Personal income rose 0.2 percent in August, missing the consensus forecast of 0.4 percent. Personal spending, however, increased by 0.9 percent, exceeding the 0.8 percent consensus.
In a separate report, the Commerce Department said gross domestic product increased at a 2.2 percent annualized rate in the second quarter. This final estimate was sharply higher than the prior estimate of 1.5 percent, reflecting increased contributions from consumer and government spending, as well as investment.
