US inflation rises less than expected in Aug

The US inflation rate saw a smaller increase than anticipated in August, potentially lowering the chances of the Federal Reserve raising interest rates again next month. According to the Commerce Department’s Bureau of Economic Analysis, the Personal Consumption Expenditures Price Index rose by 0.3% in August, slightly lower than the 0.4% increase economists had predicted.

Economists had previously forecasted a 0.4% rise in the PCE price index after a 0.2% gain in July. On a year-over-year basis, PCE inflation increased by 3.4% in August, compared to the 3.7% advance previously reported in July. The Bureau of Economic Analysis updated its methodology for calculating prices related to software and accessories, portfolio management fees, and legal services in the PCE price index.

They also revised inflation data back to 2021. When food and energy costs are excluded, the core PCE inflation increased by 0.2% in August, up from the initial estimate of 0.1% in July. The core PCE inflation surged by 3.0% year-over-year in August, after a 3.0% increase in July. The Federal Reserve monitors the PCE price measures to meet its 2% inflation target.

Meanwhile, the US goods trade deficit expanded significantly in August, driven by higher imports, which could continue to impact economic growth in the third quarter. The trade gap expanded by 11.5% to USD132.6 billion, according to the Census Bureau. Economists had expected the goods deficit to be USD115.0 billion. Imports rose by USD17.4 billion (5.5%) to USD336.1 billion, boosted by a 16.6% jump in industrial supplies, including petroleum.

Capital goods imports grew 4.0%, while consumer goods imports fell by 1.6%. Exports increased by USD3.7 billion (1.9%) to USD203.4 billion, with industrial supplies exports up 8.3%. However, consumer goods exports declined by 10.5%, along with motor vehicle and parts shipments, which dropped by 6.9%. Food exports slipped by 5.6%.

Trade has contributed to GDP growth declines for the past three quarters. Rising wholesale inventories and retailer stocks may somewhat offset the negative effects of the trade deficit on GDP growth. Job growth is expected to decelerate in September, and the unemployment rate is forecast to remain steady at 4.1% for the third consecutive month, indicating a stable labor market heading into the fourth quarter.