An inflation gauge closely tracked by the Federal Reserve rose in August, boosted mainly by higher gas prices. But measures of underlying inflation slowed in the latest sign that overall price pressures are still moderating. Friday’s report from the Commerce Department showed that prices rose 0.4% from July to August, up from just 0.2% the previous month. A 10% monthly spike in prices at the gas pump drove the increase. Excluding volatile food and energy prices, though, “core” inflation rose by the smallest amount in nearly three years, evidence that inflation pressures continue to ease. Fed officials pay particular attention to core prices, which are considered a better gauge of where inflation might be headed. Last month’s modest rise in core inflation could raise the likelihood that the Fed will leave interest rates unchanged at its next meeting Oct. 31-Nov. 1. Core prices edged up 0.1% from July to August, down from July’s 0.2%. It was the smallest monthly increase since November 2020. Compared with a year ago, core prices were up 3.9%, below July’s reading of 4.2%. That was the slowest such increase in two years. In the meantime, while Americans kept spending in August, they did so at a much more modest pace. Friday’s government report showed that consumer spending, adjusted for inflation, ticked up just 0.1% after having risen 0.6% in July. “Overall, spending remains positive and inflation is slowing, which will be welcome news to policymakers,” Rubeela Farooqi, chief U.S. economist at High Frequency Economics, said in a note to clients. Compared with a year earlier, overall prices rose 3.5% in August, slightly higher than the 3.4% increase in July. It was the second straight rise in the year-over-year figure, which has tumbled from its 7% peak in June 2022 but still exceeds the Fed’s 2% inflation target. The spike in gasoline prices is eating away at Americans’ incomes. After some solid gains last spring, inflation-adjusted incomes fell in August for a second straight month. The burden of rising energy costs is hitting Europe as well, even as new data released Friday showed inflation there declined sharply in September to the lowest level in two years. A recent surge in oil prices, however, has cast a shadow over prospects for quickly beating inflation down in Europe to the central bank’s target of 2%. The combination of higher gas prices in the U.S. and sluggish income growth could weaken consumer spending in the months ahead. If so, it would mark a slowdown from last summer’s healthy pace of spending, which is believed to have fueled solid economic growth in the July-September quarter. The inflation gauge that was issued Thursday, called the personal consumption expenditures price index, is separate from the better-known consumer price index. Earlier this month, the government reported that the CPI rose 3.7% from a year earlier, down from a peak of 9.1% in June 2022, though its core measure also slowed. The latest data will likely bolster hopes among Fed officials that they will be able to bring inflation back to their target without driving up unemployment or causing a deep recession as many economists have feared. When the Fed released its quarterly economic forecasts last week, it showed that the central bank’s policymakers envision only a small rise in unemployment by the end […]
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