According to the latest Personal Consumption Expenditures (PCE) Price Index (one of the economy’s key inflation gauges), prices increased 2.2% in August compared to the prior year. Minus more volatile prices such as food and energy, prices increased 2.7%. Month-over-month, there was only a 0.1% increase in the price index during August.
July saw a slight increase in price growth (2.5% compared to 2.4% a month prior in June). August’s results, though, are the lowest level of annual inflation since February 2021.
The Federal Reserve made an aggressive rate cut earlier in September, slashing interest rates by 50 basis points. The August PCE, which is even lower than previously projected by Dow Jones and inches away from the Fed’s goal of 2% inflation, suggests the Fed’s rate cut was an appropriate response.
Michael Pearce, deputy chief U.S. economist at Oxford Economics, projected that the September PCE report (to be released in October) will show 2% inflation.
Whether the Federal Reserve will respond with further rate cuts or merely hold its ground remains to be seen. The first rate cut already appears to have sparked at least some movement in the housing market, but the pace and extent of future cuts could have big implications for near-term real estate activity.
Omair Sharif, an economist at Inflation Insights, said (via the Financial Times), “If the Fed wants to cut by another 50 basis points in November, the inflation data isn’t going to stand in their way.”
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