US August PCE inflation comes in below forecast as consumer spending surges

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The U.S. Bureau of Economic Analysis (BEA) reported on Wednesday that the Personal Consumption Expenditures (PCE) price index rose 0.3% in August, below the 0.4% forecast by economists polled by Reuters. July's gain was revised down to 0.1% from a previously reported 0.2%. In the 12 months through August, PCE inflation advanced 3.4%, below earlier expectations; July's year-on-year reading was revised down to 3.4% from 3.7%. The BEA changed its methodology for calculating prices for software and accessories, portfolio management fees and legal services in the PCE index, and revised inflation data back to 2021.

Excluding volatile food and energy, the core PCE index climbed 0.2% over the month (forecast: 0.3%) after a downwardly revised 0.1% rise in July. Core PCE inflation increased 3.0% year-on-year in August, after a downwardly revised 3.0% advance in July — previously estimated at 3.3%. The Fed tracks the PCE measures against its 2% inflation target. Earlier this month the central bank raised its benchmark overnight rate to the 3.75%–4.00% range, the first hike in three years, and flagged further increases in the months ahead.

Consumer spending jumped 0.9% month-on-month, beating the 0.8% forecast and accelerating sharply from 0.1% in July. Adjusted for inflation, real spending rose 0.6%. Personal income, however, disappointed: it rose 0.2% against expectations of 0.5%, down from 0.3%, and real disposable income was flat — a widening gap between household spending and income growth.

Market reaction: TSX futures rose as the softer inflation reading eased concerns over further rate hikes by the Fed and the Bank of Canada; gold prices climbed, supporting mining shares; oil rebounded amid uncertainty over U.S.-Iran negotiations. Caution toward the tech sector is expected ahead of Micron's fiscal fourth-quarter earnings, due after the closing bell.