Core PCE Cools, but Consumer Spending Surges as Growth Revises Higher — Evening Brief – 09.30.26

U.S. underlying inflation increased less than expected in August, offering some relief on price pressures even as stronger consumer spending and upward revisions to economic growth complicated the Federal Reserve’s policy outlook.

The core personal consumption expenditures price index, which excludes food and energy, rose 0.2% from July, below the 0.3% consensus forecast, the Bureau of Economic Analysis reported Wednesday. July’s increase was revised to 0.1% from 0.2% following the agency’s annual economic accounts update.

Core prices increased 3% from a year earlier, matching July’s revised pace and falling below the 3.3% forecast. Although milder than anticipated, inflation remained above the Fed’s 2% objective. The broader PCE price index rose 0.3% monthly and 3.4% annually. July’s monthly increase was revised to 0.1% from 0.2%.

Following the release, futures pricing put the probability of an October quarter-point rate increase at 37.1%, down from 50.9% Tuesday, according to the CME FedWatch tool.

Consumer spending, meanwhile, increased 0.9% in August, exceeding the 0.8% forecast. Inflation-adjusted spending advanced 0.6%, compared with 0.1% in July.

Personal income rose just 0.2%, while inflation-adjusted disposable income was unchanged. The personal saving rate declined to 4.1% from 4.6%, as spending outpaced income growth.

Separately, BEA revised second-quarter gross domestic product growth to a 2.2% annual rate from 1.5%. First-quarter growth was revised to 2.5%.

The upgrade reflected stronger investment, consumer spending and government spending. Real gross domestic income increased 2.6%, while real final sales to private domestic purchasers, a measure of underlying demand, rose 4.6%.