US strongly revises up Q2 GDP growth, inflation stable

The US Commerce Department announced on Wednesday that it has significantly revised its estimate for second-quarter GDP growth in the United States, increasing it by 0.7 percentage points to 2.2 percent. The boost in real GDP was primarily fueled by consumer spending, investment, and exports, while imports contributed to the overall figure.

This positive data is expected to provide a morale boost for US President Donald Trump as his Republican Party prepares for the upcoming midterm elections in November, with the state of the economy being a crucial factor for voters.

According to the Bureau of Economic Analysis (BEA), the leading contributors to the GDP increase were real estate, information, durable goods manufacturing, and finance and insurance. Conversely, the transportation and retail trade sectors, as well as non-durable goods manufacturing, saw decreases. Additionally, the BEA revised its estimate of first-quarter GDP growth upwards by 0.4 percentage points to 2.5 percent, primarily due to upward revisions in consumer spending and services exports.

In a separate release, the BEA disclosed that the US Federal Reserve's preferred inflation gauge, the Personal Consumption Expenditures (PCE) price index, remained steady at 3.4 percent year-on-year in August. This figure was unchanged from the previous month after a revision to the July data, as reported by the department. The US has faced significant inflationary pressures since the pandemic, with the Fed persistently missing its target of 2 percent inflation since early 2021.

Earlier this month, the Fed raised interest rates for the first time in three years to tackle inflation. The data for Wednesday's report pertains to the PCE price index, which is the Fed's target inflation gauge.

US inflation has been exacerbated by some of Trump's policies, including the imposition of widespread tariffs and his decision to launch military action in Iran, which has led to a surge in global energy prices. As a result, US consumers are currently paying approximately 50 percent more at the gas pump. Core PCE inflation, excluding volatile energy and food prices, stood at 3.0 percent year-over-year.

Financial markets are keenly observing inflation data to gauge the Fed's subsequent actions. Earlier in the week, a prominent central banker suggested there was no urgent need to raise interest rates further, although he acknowledged that another rate hike could be necessary before the year's end.