Inflation was stronger than expected in August despite the central bank’s efforts to keep prices down, according to closely watched data from the Federal Reserve on Friday.
The personal consumption expenditures price index excluding food and energy rose 0.6% this month after being flat in July. That was higher than the Dow’s 0.5% forecast, another sign that inflation is expanding.
On a year-over-year basis, core PCE rose 4.9%, beating expectations for a 4.7% gain and up from 4.7% the previous month.
Including natural gas and energy, the overall PCE rose 0.3% in August after falling 0.1% in July. It rose even as natural gas prices fell sharply, leaving pumps costing well below the nominal record of more than $5 a gallon earlier in the summer.
The Fed generally favors core PCE as the broadest price indicator because it adjusts for consumer behavior. In terms of core or headline, Commerce Department data on Friday showed inflation well above the central bank’s long-term target of 2 percent.
Outside of the inflation figures, data showed that income and spending continued to grow.
Personal income rose 0.3% in August, unchanged from July and in line with expectations. Spending rose 0.4% after falling 0.2% the previous month, beating expectations for a 0.3% gain. After-tax income rose just 0.1% after rising 0.5% in the previous month, while inflation-adjusted spending rose 0.1%.
Inflation data, which reflects a shift in spending from goods to services, rose 0.3% and 0.6%, respectively, for the month. Food prices rose 0.8%, while energy prices fell 5.5%. Housing and utility prices rose 1%, while health care rose 0.6%.
Markets reacted little to the news, with stock futures pointing to a slightly higher open on Wall Street.
However, the market has been highly volatile as investors grapple with the highest inflation since the early 1980s. To fight inflation, the Fed has implemented a series of rate hikes this year, totaling 3 percentage points, to the highest level since early 2008.
However, Fed officials remained wary of the need to continue tightening policy as data showed that rate hikes have not had the effect of driving down prices.
Federal Reserve Chairman Lyle Brainard warned against withdrawing interest rates “prematurely” in a speech Friday morning, saying they would remain elevated “for some time” until inflation was brought under control.