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US PCE Inflation Data Shows Persistent Pressures in August
Confirmed
In Short: The Fed’s preferred inflation gauge cooled more than expected but remained elevated well above target in August, as consumers continued to face price pressures.
The US Bureau of Economic Analysis (BEA) released the Personal Consumption Expenditures (PCE) Price Index data for August, showing a 0.3% increase month-over-month and an annualized reading of 3.4%, well above the Federal Reserve's 2% target.
Market participants closely watch the PCE Price Index as it is the Fed’s preferred measure of inflation, which could influence its policy outlook.
The core PCE Price Index, which excludes volatile food and energy prices, rose 0.2% month-over-month and 3% year-over-year, slightly below the 3.3% expected by economists.
Scott Anderson, chief economist at BMO Capital Markets, noted that the August numbers are already stale, given recent price surges.
The BEA also reported that Personal Income rose by 0.2% on a monthly basis in August, while Personal Spending expanded by 0.9%.
The data comes as the Federal Reserve prepares for its last two meetings of the year, with markets currently expecting both headline and core PCE to rise 0.3% month-over-month in August.
Kevin Warsh, the Fed Chair, stated that inflation had been too high for too long, and at 3%, it still is.
The core PCE Price Index, which excludes volatile food and energy prices, stood unchanged at 3% and came in below analysts' estimate of 3.3%.
The longer-run rate is expected to rise to 3.2%, up from the previous 3.1%, and the unemployment rate is expected to be at 4.1% by the end of 2026, down from the previously estimated 4.3%.
What this adds
The report adds that the August PCE data seems fairly old, given recent diesel price increases in the UK and US.
The data also shows that the core PCE Price Index, which excludes volatile food and energy prices, rose 0.2% month-over-month and 3% year-over-year, slightly below the 3.3% expected by economists.
The Fed's primary inflation rate, the core PCE price index, showed a significant slowdown in price increases over the 12 months through August compared to the initial report for July.
What's confirmed
- AUD/USD is sitting at two-month lows near 0.6950 in the Asian session on Wednesday, as below-expectations August Australian underlying CPI data pours cold water on expectations for further RBA interest rate hikes.
- The United States (US) Bureau of Economic Analysis (BEA) will publish the Personal Consumption Expenditures (PCE) Price Index data for August on Wednesday at 12:30 GMT.
- Core prices, which exclude volatile food and energy prices, are forecast to have risen 3.3% over the year.
- According to July data, headline PCE rose 3.7% year-over-year in July, while core PCE climbed 3.3% year-over-year, both well above the Federal Reserve's 2% inflation target.
- August PCE inflation data, which will guide Federal Reserve monetary policy expectations and subsequent rate-hike probabilities.
- August PCE inflation data is about to be released, short-term market focus has shifted back to inflation and the Federal Reserve's subsequent rate-hike path.
- Markets currently expect both headline and core PCE to rise 0.3% month-over-month in August.
- Against the backdrop of the Federal Reserve's 25-basis-point rate hike in September, whether inflation remains sticky will directly influence market expectations regarding further rate hikes in October and by the end of the year.
What's still developing
- The hike explains itself: the Middle East war maintains energy prices upward, pressuring the cost of living, while PCE inflation hit 4% in early 2026, doubling the central bank’s goal.
- Sure, inflationary pressures have receded from that level, but they are still far from the comfortable 2%.
- That means inflation is likely to hold above the preferred 2% and hence, result in some Fed action to tame it.
- The report will provide further evidence that stubbornly high inflation is weighing on household budgets and the broader economy alike.
- Lately, the two inflation measures have shown the same trend.
- Inflation has stayed stubbornly high due to the war in Iran pushing up gasoline and diesel prices; AI spending pushing up costs for electronics and some other products; and tariffs stoking price increases on just about everything else.
- For 2027, the US economy is expected to grow by 2.4%, up from the previous estimates of 2.3%.
- In 2027, PCE inflation is projected at 2.3%, matching June projections.
- When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy.
- This story about the August 2026 PCE inflation report will be updated with further details.
- Federal Reserve policymakers are focused on the PCE headline figure as they try to bring inflation back to their long-run target of 2%, though they view core data as a better indicator of inflation.
- Compared with July's readings, headline PCE declined from 3.7% to 3.4%, while core PCE also fell from 3.3% to 3%.