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US core PCE inflation set to rise 2.9% YoY in August with Federal Reserve easing outlook in focus
- The core Personal Consumption Expenditures Price Index is forecast to rise 0.2% MoM and 2.9% YoY in August.
- Headline annual PCE inflation is seen edging higher to 2.7%.
- Markets broadly expect the Federal Reserve to cut the policy rate by 25 bps in October.
The United States (US) Bureau of Economic Analysis (BEA) will publish the Personal Consumption Expenditures (PCE) Price Index data for August on Friday at 12:30 GMT.
The PCE index is closely watched by market participants because it is the Federal Reserve’s (Fed) preferred measure of inflation and could influence the policy outlook.
Anticipating the PCE: Insights into the Federal Reserve’s key inflation metric
The core PCE Price Index, which excludes volatile food and energy prices, is expected to advance 0.2% month-over-month (MoM) in August, at a slightly softer pace than the 0.3% increase recorded in July.
In 12 months to August, the core PCE inflation is set to remain unchanged at 2.9%. Meanwhile, the headline annual PCE inflation is forecast to tick up to 2.7% in this period.
Markets usually brace for a big reaction to the PCE inflation data as Fed officials consider this inflation gauge when deciding on the next policy move.
While speaking in the September post-meeting press conference after lowering the policy rate by 25 basis points (bps), Fed Chair Jerome Powell said that the risk of persistent inflation from tariffs needs to be managed and assessed. Powell also shared the Fed’s forecasts for PCE inflation data, noting that the annual rate was probably 2.7% in August, and the core PCE Price Index was expected to rise 2.9%.
Previewing the PCE inflation report, TD Securities said:
“We expect core PCE prices decelerated in August to 0.19%. Headline likely picked up to 0.23% due to accelerating food and energy prices. Y/Y inflation should be 2.9% and 2.7%, respectively. Passthrough from tariffs into core goods prices continued gradually, while supercore services moderated. We forecast personal spending and income moderated to 0.4% and 0.3%, respectively.”
