Inflation Continues as Expected in the US

As anticipated by both the Biden administration and the U.S. Federal Reserve, the Personal Consumption Expenditure, or PCE, rose 0.4% in August, and is up 4.43% year-on-year. This marks the sixth straight month of increases, as the impact of the Delta variant put the brakes on rampant growth. The core PCE price index which looks at prices paid by consumers for goods and services and removes the volatility caused by movements in food and energy prices to reveal underlying inflation trends, was up 0.3% in August.

While the CPI, or Consumer Price Index, is a more well-known indicator of inflation, the core PCE index is the Fed's primary measure of inflation. Last week the Fed upgraded its core PCE inflation projection for 2021 to 3.7% from the 3.0% estimate it made in June. Recent comments from the Fed have indicated that the central bank expects relief from higher inflation in the coming months.

In the report, consumer spending rose 0.8% in August, markedly higher than the 0.1% decrease in July. While spending on cars decreased, Americans increased spending on foods and drinks, health-care, and personal care and clothing services.

While inflation remains at a 30-year high, signs are pointing to price pressures creeping into next year. For the 12-month period, the rate of inflation stands at 4.3%, which is the highest rate since 1991. The Federal Reserve is pushing ahead with a reduction of its stimulus program that could come as soon as November and as a growing number of Fed officials expect an interest rate rise next year.

As Americans head into the fourth quarter, supply bottlenecks—increasingly evident at U.S. ports, as well as manufacturing disruptions—could create headwinds into the remainder of the year and keep prices inflated.