US Inflation Rises Less Than Expected in August

• US inflation rose less than expected in August 2026, with the Personal Consumption Expenditures (PCE) Price Index increasing 0.3% month-over-month, below economists’ expectations for a 0.4% increase. July’s monthly increase was also revised down to 0.1% from 0.2%, easing some of the immediate pressure on the Federal Reserve to raise rates again in October.
• On an annual basis, headline PCE inflation stood at 3.4% in August, unchanged from a downwardly revised 3.4% in July. The monthly increase was driven partly by a 4.4% rebound in gasoline prices, while food prices were unchanged.
• Core PCE inflation, which excludes volatile food and energy prices, rose 0.2% month-over-month and 3.0% year-over-year. July’s annual core inflation rate was revised down to 3.0% from the previously reported 3.3%, partly reflecting changes in the methodology used to calculate several service-price components.
• Consumer spending remained strong despite higher prices and borrowing costs, surging 0.9% in August after a downwardly revised 0.1% increase in July. Inflation-adjusted spending rose 0.6%, while real disposable income was unchanged and the household saving rate fell to 4.1%, its lowest since November 2022.
• Financial markets scaled back expectations for near-term tightening following the data. The probability of an October Fed rate increase fell to roughly 41.5%, from 51.5% immediately before the release and 70% on Monday, September 28, 2026, according to CME’s FedWatch tool. US Treasury yields declined, and the dollar weakened following the report.
• The softer-than-expected inflation data gives the Fed greater scope to wait for additional information before raising rates again. However, still-elevated inflation and resilient consumer spending mean further tightening remains possible later in the year if price pressures persist.

(Source: Reuters)