US annual PCE inflation reaches 3.4 per cent as spending accelerates
The US personal consumption expenditures price index rose 3.4 per cent from a year earlier and 0.3 per cent from July in August. The measure excluding food and energy increased 3.0 per cent annually. Nominal consumer spending rose 0.9 per cent on the month, while inflation-adjusted spending rose 0.6 per cent. The two spending measures show that the increase reflected more than higher prices alone.
Economics & Markets··Evening
August prices in two comparison periods
The US Bureau of Economic Analysis reported that its personal consumption expenditures price index was 3.4 per cent higher in August than a year earlier. The increase from July was 0.3 per cent. Associated Press also reported the annual 3.4 per cent and monthly 0.3 per cent figures from the same release. The index follows changes in the prices of goods and services households buy. The annual rate covers twelve months; the monthly rate covers only July to August. They cannot be treated as interchangeable readings. This release also incorporates the agency’s annual update of national accounts, making a consistent revised series important when comparing August with earlier months. The bureau revised its income and spending series back to the start of 2021. The August rate therefore sits within an updated historical comparison base. This matters especially when comparing it with previously published annual rates, because the older figures no longer belong to the same revised series.[1], [2]
Core prices and spending
Excluding food and energy, the price index rose 0.2 per cent on the month and 3.0 per cent on the year. Associated Press reported both core rates as well. The narrower measure sets aside volatile food and energy prices; it does not replace the overall price experience of households. In the same release, personal consumption spending in current dollars increased by $190.8 billion, or 0.9 per cent, from July. After adjusting for prices, real spending rose 0.6 per cent. The gap means that the entire increase in money spent should not be mistaken for additional goods and services purchased. The positive real figure nevertheless shows that the quantity of purchases also rose in August. The bureau puts the real spending increase at $92.8 billion. The inflation-adjusted series removes the effect of price changes, so it does not measure the same thing as the nominal $190.8 billion increase. Reporting both clarifies the scope of the spending news and the role of prices.[1], [2]
Income alongside spending
Personal income measured in current dollars increased by $66.6 billion, or 0.2 per cent, in August. Disposable personal income after current personal taxes rose by $68.6 billion, or 0.3 per cent. The bureau says $114.1 billion of the nominal spending increase came from goods and $76.7 billion from services. The split shows that both broad groups contributed to the monthly spending gain. Income and spending moving at different rates in one month does not by itself establish that households borrowed more or ran down savings; the relevant accounts would need to be read together. The clear result of this August release is that real consumption increased on the month while annual price inflation stood at 3.4 per cent. The agency reported personal saving of $990.2 billion and a saving rate equal to 4.1 per cent of disposable income. Both belong to the same income and spending accounts. One monthly saving rate, however, does not establish a particular future spending pattern.[1]
