U.S. Core PCE Inflation Holds at 3.0% as Consumer Spending Jumps 0.9%

U.S. core inflation measured by the personal consumption expenditures price index was 3.0% in August from a year earlier, essentially unchanged from revised July data, while consumer spending accelerated sharply. Personal consumption expenditures rose 0.9% from July in current dollars, the strongest monthly increase in the revised recent series.

Headline PCE inflation was 3.4% year over year in August. On a monthly basis, the headline index increased 0.3% and the core index, which excludes food and energy, rose 0.2%. Real consumer spending, which removes the effect of price changes, advanced 0.6% even as real disposable personal income was unchanged.

The Bureau of Economic Analysis said current-dollar PCE increased by $190.8 billion in August. Spending on goods accounted for $114.1 billion of that increase and services added $76.7 billion. Personal income rose $66.6 billion, or 0.2%, while disposable personal income increased $68.6 billion, or 0.3%.

Annual revisions changed the July comparison

The August report arrived with BEA’s annual update of the National Economic Accounts, making comparisons with figures published before September 30 more complicated than usual. The update revised personal income and outlays estimates beginning with January 2021 and incorporated newer source data and methodology changes across the accounts.

That matters for the phrase “held at 3.0%.” BEA’s August vintage shows the annual core PCE rate at 3.0% after revised July data put the prior month at roughly the same level. The July release published in August had originally reported core PCE inflation of 3.3% year over year and headline PCE inflation of 3.7%. Those older figures have been superseded by the annual update and should not be compared mechanically with the new August readings.

The monthly revisions are visible directly in Wednesday’s release. BEA now shows July headline PCE inflation at 0.1% from June and July core PCE at 0.1%. The earlier July release had reported 0.2% for both measures. August therefore represented a pickup in monthly price growth even though the revised 12-month core rate was stable at 3.0%.

BEA said the annual update incorporates revised source data and changes to estimation methods. Because the revisions reach back several years, the update affects the historical path of both spending and inflation rather than only the latest month. For readers comparing today’s figures with older releases, the current BEA data vintage is the appropriate baseline.

Spending accelerated much faster than income

The 0.9% rise in current-dollar PCE was a marked acceleration from the revised 0.1% increase in July. The stronger August reading was not solely the result of higher prices: real PCE rose 0.6%, compared with a revised 0.1% gain in July. That indicates households increased the volume of goods and services they consumed during the month as well as paying higher prices overall.

Income growth was much slower. Personal income increased 0.2%, and disposable personal income after personal current taxes rose 0.3%. After adjusting disposable income for inflation, real DPI was flat. The gap between real spending growth and real income growth makes the August report notable because consumption expanded even though purchasing power from current income did not.

BEA reported personal saving of $990.2 billion and a personal saving rate of 4.1% of disposable income. The report does not establish that the entire spending increase was financed by lower saving or any single source, so the month should not be read as a definitive shift in household behavior. It does show that spending growth substantially outpaced income growth in August.

The composition also leaned toward goods in dollar terms. Goods spending rose $114.1 billion, more than the $76.7 billion increase in services. That split is useful context for retailers and other consumer-facing businesses, but the PCE report is an economy-wide measure and does not show which individual companies captured the additional spending.

The Fed still faces inflation above its goal

The revised inflation readings arrive two weeks after the Federal Reserve raised its target range for the federal funds rate by a quarter percentage point to 3.75% to 4.0%. In its September 16 policy statement, the Federal Open Market Committee said inflation remained elevated and described domestic spending as resilient.

August’s 3.0% core PCE rate is lower than the 3.3% figure originally reported for July, but much of that apparent improvement reflects the annual revision to prior data rather than a one-month drop from July to August. The headline PCE rate of 3.4% also remained above the Fed’s 2% inflation goal. At the same time, the 0.6% increase in real spending points to continued consumer demand rather than a sharp pullback in activity.

Those two features pull in different directions for monetary policy analysis. Slower underlying inflation would generally reduce pressure for tighter policy, while strong real consumption can sustain demand. The August report by itself does not determine the Fed’s next decision, and the revisions make it especially important to distinguish newly reported August changes from changes to the historical data.

BEA’s next Personal Income and Outlays release is scheduled for October 29 at 8:30 a.m. EDT and will cover September. That report will provide another month of data on whether the revised 3.0% core inflation rate persists and whether August’s unusually strong spending growth continues.