In August, the increase in prices in the United States, excluding food and energy costs, slowed down, dropping below 4.0% annually for the first time in over two years. This is seen as positive news for the Federal Reserve as it makes decisions about monetary policy.
However, the fight against inflation is not over. The Commerce Department’s report on Friday revealed that overall prices are still high, partly due to increased gasoline prices. Nevertheless, the decrease in underlying inflation gives hope that the Federal Reserve may not raise interest rates in November.
Rubeela Farooqi, Chief U.S. High Frequency Economics, a firm in White Plains, New York, employs economists who predicted that future economic growth will be slower and less likely to put pressure on pricing. This is likely to keep the Federal Open Market Committee (FOMC) from making any interest rate hikes for the remainder of 2023.”
The core Personal Consumption Expenditures (PCE) price index, which excludes the volatile food and energy components, rose by 0.1% in August, following a 0.2% increase in July. Economists surveyed by Reuters had predicted a 0.2% rise in the core PCE price index.
Over the past year until August, the core PCE price index, which doesn’t include food and energy, went up by 3.9%. This is the first time it’s been below 4.0% since June 2021.
In July, the core PCE price index increased by 4.3%.
Starting with the August data, the government introduced some new ways to measure prices. One is the PCE price index, which excludes food, energy, and housing costs. The other is PCE services, excluding energy and housing, often called super core inflation.
“The cost of goods and services, excluding food, energy, and housing, increased by 0.1% last month, following a 0.2% rise in July. Specifically, the prices for services, excluding energy and housing, went up by 0.1% in August after a 0.5% increase in the previous month.
Gasoline prices surged in August, hitting a peak of $3.984 per gallon during the third week, which was the highest price we’ve seen this year. In comparison, the price was $3.676 per gallon during the same period in July.
The overall cost of goods and services, including everything, rose by 0.4% in August after a 0.2% increase in July. Over the 12 months leading up to August, the cost of goods and services went up by 3.5%, compared to a 3.4% increase in July. This information is crucial for the U.S. central bank as it tracks these price indexes to manage its 2% inflation target.
Policymakers are paying close attention to a more comprehensive price measure, known as the ‘super core,’ to assess their progress in controlling inflation.
U.S. stocks had a positive start, the dollar weakened against other currencies, and U.S. Treasury prices went up.”
