Inflation PCE complies with expectations: What will the Fed do?

PCE inflation figures for the month of August, published this Friday, September 27, confirm apparent stability, with an increase in accordance with expectations. A key indicator for the federal reserve, the PCE remains above the target, while American consumption continues to surprise by its vigor. In a context of monetary tension, these data maintain the vagueness on the upcoming trajectory of interest rates.

Inflation under control: the figures confirm the trajectory

While the Fed hesitates on the trajectory to follow, the report of the Commerce Department for the month of August confirmed That the American economy continues its way to normalization of prices without sudden rupture.

Inflation remains measured, the markets are reassured, and the federal reserve can maintain its strategy without precipitated adjustment. Thus, all data complies with the forecasts of the Dow Jones consensus, avoiding any major surprise.

Here is The main points to remember from this publication:

• Global PCE index (monthly): +0.3 % in August;
• Global PCE index (annual): +2.7 %, against 2.6 % in July;
• PCE Core index (excluding food and energy): +0.2 % monthly/ +2.9 % annual;
• Price evolution per sector: per sector, prices increased by 0.8 % in energy, from 0.5 % in food, 0.4 % in housing, 0.3 % for services and 0.1 % for goods.

These figures show that, despite some targeted increases in the energy, food and housing sectors, the whole remains under control, with a core inflation rate always below the 3 %.

The Fed, which uses the PCE index as the main reference rather than the ICC, continues to judge this framework suitable for its medium -term inflation objective set at 2 %. The absence of sudden acceleration therefore confirms the projections of two new rate drops by the end of the year.

Solid consumption

Beyond the inflation figures themselves, the report reveals a particularly robust consumption dynamic. In August, American household expenditure increased by 0.6 %, while personal income increased by 0.4 %, two figures above expectations, which testify to the vigor of domestic demand.

For Chris Rupkey, chief economist at Fwdbonds, this trend illustrates a real return in strength of the consumer : “Clearly, consumers have made a real box […] Summer was the time chosen for a frenzy of avenging expenses ”he commented.

In addition, the personal savings rate increased to 4.6 %, a signal which shows that households do not consume at the expense of their financial resilience.

In addition, economists note that the customs rates established by the Trump administration have had a limited effect on consumer prices. Many companies have anticipated these measures by constituting stocks or absorbing costs. This proactive management has made it possible to avoid immediate transmission of price increases to households.

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The federal reserve can therefore continue, without haste, its trajectory of drop in rates initiated last week, with a first reduction of 25 base points. The markets anticipate a new decline in October, even if the hypothesis of a second movement in December remains uncertain. The current stability of Core inflation provides the Fed the necessary room for maneuver, without having to deal with pricing running signals.