August's PCE inflation rate was higher than desired, but other economic indicators may provide some relief.

Teejay Broughton

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4 mins

Oct 01, 2022 13:49

August's PCE inflation rate was much higher than the Federal Reserve would have liked to see, but other economic indicators may provide some relief.

Despite the Federal Reserve's efforts to keep inflation at a manageable level, August's numbers show that prices are rising faster than anticipated. This could mean that the Fed will have to take additional steps to cool the economy and prevent inflation from spiraling out of control.

The Fed is concerned about the rising cost of food, which has a big impact on lower-income households. Energy prices did fall broadly in August, so the PCE headline figures are a little better. However, the rising cost of food is still a concern for the Fed.

There is no real evidence that inflation is coming under control in this report. Inflation accelerated when compared with July. Prices for goods and services both rose, albeit at different rates. This report provides further evidence that inflation is still a problem in the economy.

Other Inflation Measures: A Closer Look

The Fed's preferred inflation measure is a clue to further interest rate hikes in November and December 2022. The market currently expects more rate hikes at those meetings.

The inflation data released today offers some signs that the economy may be starting to see prices moderate. The headline rate of CPI inflation came in at 0.1%, lower than the 0.3% seen in the PCE report. This is encouraging news for the economy, and may mean that we are starting to see some relief from high prices.

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The Federal Reserve will closely monitor producer prices in order to gauge whether inflationary pressures are easing. A 1.2% decline in prices in August could be an indication that prices are softening for consumers. This is due to the fact that producer prices often lead those for end consumers. However, the Fed will want to see this trend confirmed in future data before making any decisions.

Inflation remains a key concern for consumers and businesses alike, and the latest data from the Bureau of Labor Statistics shows that prices continue to rise. The Personal Consumption Expenditures (PCE) index, which is a measure of inflation, rose by 0.4% in August, which was one of the strongest readings for the month.

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The Fed is worried about inflation becoming entrenched in the economy, and the continued price increases for services could be a signal that this could happen. Prices for services are usually more stable than prices for goods, so if prices for services continue to rise, it could mean that inflation will become a more permanent problem.

Looking Ahead: Measures to Help You Achieve Your Goals

While the inflation reports from August give some insight into pricing trends, they are still lagging indicators. October is here, and we need to be looking ahead to see what the future holds for prices.

Inflation Nowcast: Prices Expected to Rise in Coming Months

It's encouraging to see that the Cleveland Fed's inflation nowcast for September is slightly higher than the August data. However, it's important to keep in mind that the Fed will be looking at underlying inflation trends rather than headline numbers when making decisions about interest rates.

Falling Prices? Here's What You Need to Know

There are clearly some prices that are in decline at the moment. Oil and gas prices have fallen in September in the U.S., and freight rates for container shipping have fallen quite sharply for most of 2022. These trends could continue, with U.S. house prices softening and even food prices moderating, as businesses look to boost sales in the face of a potential recession.