WASHINGTON, Sept 29 (Reuters) – Underlying inflation in the United States slowed in August, with annual price increases excluding food and energy falling below 4.0% for the first time in more than two years, as monetary policy is weighed. This is welcome news for the Federal Reserve. Policy outlook.
But the fight against inflation is far from won, with a report released Friday by the Commerce Department showing that overall prices are still rising, due in part to higher gasoline prices.
Although the economy remains strong, consumer spending has slowed, combined with a decline in underlying price pressures, raising expectations that the U.S. central bank will not raise interest rates in November. The Consumer Expenditure and Inflation Report will likely be the last official economic data released before the partial U.S. government shutdown scheduled for after midnight Saturday. If the data outage continues for an extended period of time, the Fed may become reluctant to raise interest rates between October 31st and November. 1 meeting.
“This report suggests that there is progress on inflation,” said Conrad DeQuadros, senior economic adviser at Burian Capital in New York. “I think Fed officials are shifting their focus from how far they have to raise rates to how long they can keep them at these high levels.”
The personal consumption expenditure (PCE) price index, which excludes volatile food and energy, rose 0.1% last month. This was the smallest increase since November 2020 and followed a 0.2% rise in July. Economists polled by Reuters had expected the core PCE price index to rise 0.2%.
In the 12 months to August, the so-called core PCE price index rose 3.9%. This is the first time since June 2021 that the annual core PCE price index has fallen below 4.0%. The core PCE price index rose 4.3% in July.
The slowdown in underlying inflation was reinforced by two new price indicators introduced by the government in its August report: the PCE price index excluding food, energy and housing, and the PCE services excluding energy and housing index.
The PCE price index, which excludes food, energy and housing, also rose 0.1% last month after rising 0.2% in July. PCE services, which exclude energy and housing inflation, rose 0.1%. The so-called supercore inflation rate rose 0.5% last month. Policymakers are keeping an eye on supercore price measures to gauge progress in fighting inflation.
A University of Michigan survey also confirmed the inflation outlook, showing that consumers’ 12-month inflation expectations fell to 3.2% this month, the lowest level since March 2021, from 3.5% in August. Consumers’ long-term inflation expectations fell to 2.8% from 3.0% last month.
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But rising oil prices are pushing up gasoline prices, suggesting the Fed has a long way to go to reach its 2% inflation target.
![Shoppers in Soho New York](https://cloudfront-us-east-2.images.arcpublishing.com/reuters/UKUNQF7M5NMZ3AQZHZLPKFKNQY.jpg)
![Shoppers in Soho New York](https://cloudfront-us-east-2.images.arcpublishing.com/reuters/UKUNQF7M5NMZ3AQZHZLPKFKNQY.jpg)
A woman carries a Staud shopping bag as she walks past people lining up for a pop-up shop in the SoHo neighborhood of New York City, USA, on September 21, 2023.Reuters/Bing Guan Obtaining license rights
The overall PCE price index rose 0.4% in August after rising 0.2% in July. The PCE price index rose 3.5% in the 12 months to August, after rising 3.4% in July. The central bank tracks his PCE price index for monetary policy.
Stock prices on Wall Street were mixed. The dollar fell against a basket of currencies. U.S. Treasury prices rose and yields fell further from multi-year highs.
“Keeping year-over-year (core) numbers below 4% is a big psychological win for the bulls and will help keep 10-year yields in check,” said David Russell, global head of market strategy at TradeStation. There is a possibility.” .
Cooling of consumer spending
The Fed left interest rates unchanged last week, but tightened its hawkish monetary policy stance. From March 2022, the policy rate will be raised by 525 basis points to the current range of 5.25-5.50%. Financial markets currently expect the central bank to keep interest rates unchanged from October 31st to November. According to CME Group’s FedWatch tool, there is one policy meeting.
Consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose 0.4% last month after increasing 0.9% in July. This partly reflected an increase in gas station sales due to higher gasoline prices. Increased spending on housing, utilities, transportation, hospitals and outpatient services also boosted spending.
Adjusted for inflation, spending rose slightly by 0.1%, following a 0.6% increase in July. Although consumer spending slowed in the April-June quarter, it is expected to regain momentum in the third quarter and economic growth will continue.
Income rose 0.4%, supporting spending as wages rose 0.5% due to a tight labor market. Household savings also fell, with the savings rate dropping from 4.1% in July to 3.9%, the lowest level since December last year. Higher gas prices, reduced savings and student loan repayments could put pressure on spending.
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The government shutdown is expected to negatively impact spending by furloughing hundreds of thousands of federal employees and cutting off access to food and nutrition assistance programs for millions of people with various services disrupted. ing.
“While there is no sign of a significant decline in consumer spending that would suggest an impending recession in these numbers, it is likely that consumers will increasingly struggle under the weight of rising energy prices, borrowing costs, and slowing income growth. “The signs of stress are clearly increasing,” Scott said. Anderson, chief U.S. economist at BMO Capital Markets in San Francisco, said:
The growth outlook for the current quarter was boosted by other Commerce Department data on Friday showing the goods trade deficit fell 7.3% in August to $84.3 billion as exports rose and imports fell. It was done. Retailers also increased inventory. Gross domestic product (GDP) growth in the third quarter is expected to be at an annual rate of 4.9%. The economic growth rate in the second quarter was 2.1%.
Report by Lucia Mutikani.Editing: Paul Simao
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