U.S. Consumer Spending Soft in August -- 3rd Update
By Ben Leubsdorf
The Federal Reserve is facing mixed signals on U.S. inflation as it weighs whether to raise short-term interest rates one more time in 2017.
The Fed's preferred price gauge, the personal-consumption expenditures price index, rose 0.2% in August from a year earlier, the Commerce Department said Friday. Excluding volatile food and energy prices, the index rose a modest 0.1% on the month, less than economists had expected.
Compared with a year earlier, headline prices rose 1.4% and so-called core prices were up just 1.3% -- well below the Fed's long-elusive 2% annual target and showing little evidence of an incipient pickup.
The Fed needs to see "some firming" in the coming months to stay on track for a rate increase in December, "but it doesn't need to be substantial" to clear the bar for action, said Gregory Daco, chief U.S. economist at Oxford Economics.
Another broad gauge of U.S. inflation, the Labor Department's consumer-price index, showed stronger growth for headline and core prices in August. That was in part due to a jump in shelter costs; the Fed-favored PCE index gives significantly less weight to housing than does the CPI.
"That's just in the composition of the two different baskets," Mr. Daco said.
Price growth has been subdued in recent months even with the unemployment rate hovering below 4.5%, surprising central-bank officials who expect price and wage pressures to build in response to a tightening labor market. Some have blamed one-off factors, such as a sharp decline this spring in prices for cellphone plans, while other policy makers have worried that the slump may reflect more fundamental forces.
"My colleagues and I currently think that this year's low inflation is probably temporary, so we continue to anticipate that inflation is likely to stabilize around 2% over the next few years," Fed Chairwoman Janet Yellen said Tuesday during a speech in Cleveland.