Research
September 24, 2024
PCE Deflator
The Fed’s Preferred Inflation Measure Moderated Further; Personal Spending Rose Solidly
The personal consumption expenditures deflator—the Federal Reserve’s preferred inflation measure—inched up 0.1% in August after rising by 0.2% in July. Food prices mirrored the headline measure, also increasing by 0.1% in August. At the same time, energy costs declined 0.8% in August, falling for the third time in the past four months and helping to keep a lid on overall pricing pressures. Excluding food and energy, the core PCE deflator edged 0.1%, the slowest monthly pace since May.
The PCE deflator has risen 2.2% since August 2023, down from 2.5% year-over-year in July and the lowest since February 2021. Yet, core inflation inched up to 2.7% year-over-year in August after remaining at 2.6% for two straight months. Despite the uptick in core inflation, these data show that pricing pressures have moderated significantly over the past couple of years, with the PCE deflator peaking at 7.1% year-over-year in June 2022 and core PCE inflation topping off at 5.5% in September of that year.
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The Federal Open Market Committee cut short-term interest rates by 50 basis points at the conclusion of its September 17–18 meeting. This report sets the stage for additional 25 basis-point cuts at both of the next two meetings, which are November 6–7 and December 17–18. (The November meeting occurs the week of the U.S. election, but for now, it is seen as a “live” meeting with action likely.)
In other aspects of the latest report, personal consumption expenditures rose 0.2% in August after jumping by 0.5% in July. Spending on foodservices and accommodations increased 0.3% in August, easing from 0.4% growth in July. Over the past 12 months, personal spending grew 5.2%, with foodservices and accommodation purchases up 4.5% since August 2023. These data suggest how consumer spending has helped buoy the U.S. economy, helping to provide resilience despite lingering challenges, including for foodservices and accommodations.
With that said, higher prices have also buoyed those data points. Real personal consumption expenditures have risen by a solid 2.9% year-over-year in chained 2017 dollars, while personal spending on foodservices and accommodations increased by a more modest 0.9% year-over-year.
With that said, higher prices have also buoyed those data points. Real personal consumption expenditures have risen by a solid 2.9% year-over-year in chained 2017 dollars, while personal spending on foodservices and accommodations increased by a more modest 0.9% year-over-year.
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Personal incomes rose 0.2% in August, down from 0.3% in July. Wages and salaries also increased by 0.5% for the month. Over the past 12 months, wages and salaries have increased 6.3%, or 6.2% year-over-year in the service-producing industries. The personal savings rate ticked down for the second consecutive month to 4.8% in August, the weakest reading since December.
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