PCE inflation August 2025:

Core inflation held steady in August according to the latest data from the Federal Reserve, indicating that the central bank may proceed with interest rate reductions in the near future.

The personal consumption expenditures price index rose by 0.3% in August, resulting in an annual headline inflation rate of 2.7%, as reported by the Commerce Department. Excluding volatile food and energy prices, the core PCE price level increased by 0.2%, bringing the annual core inflation rate to 2.9%.

While the headline inflation rate saw a slight uptick from July, the core rate remained unchanged. These figures were in line with market expectations, with spending and income numbers slightly surpassing estimates.

Despite the Fed’s target inflation rate of 2%, the recent data is unlikely to deter policymakers from their plan for two more interest rate cuts by the end of the year. The central bank places particular emphasis on the PCE as its preferred measure of inflation, considering it to offer a more comprehensive view compared to other indices like the consumer price index.

Following the release of the report, stock market futures rose and Treasury yields dipped slightly. The data also suggested that President Trump’s tariffs have had a limited impact on consumer prices, with companies implementing strategies to mitigate cost increases.

Goods prices saw a modest increase of 0.1%, while services rose by 0.3%. Food prices rose by 0.5% and energy goods and services saw a more significant jump of 0.8%. Housing costs also increased by 0.4%.

Despite the ongoing trade tensions, consumers have remained resilient, continuing to spend robustly as incomes have remained stable. The personal saving rate also saw a slight uptick to 4.6%.

Federal Reserve officials, including Chair Jerome Powell, view the tariffs as a temporary factor contributing to price increases rather than a sustained driver of inflation. While markets anticipate another rate cut in October, there is less certainty about a further reduction in December.

In its latest meeting, the Federal Open Market Committee approved a quarter percentage point cut in the fed funds rate, marking the first easing of the year and bringing the benchmark rate to a target range of 4%-4.25%.