U.S. inflation eases in August: PCE index 3.4% year-on-year, below economists’ expectations

The personal consumption expenditures (PCE) price index rose 3.4% year-on-year in August, below the 3.7% expected by economists surveyed by the Wall Street Journal and down from 3.7% in July. On the month, the index rose 0.3%. The “core” measure, which excludes volatile food and energy prices, rose by just 0.2% on the month and 3.0% on the year — below the expected 3.3% and cooling from 3.3% in July.

Part of the decline is explained by a change in methodology: the Bureau of Economic Analysis this time updated the formula with which it calculates the PCE index, which appears to have shaved a few tenths off the rate, although economists warn that inflation remains well above the Fed’s 2% target — a level not reached in more than five years, as MarketWatch notes.

On the jobs front, the ADP report showed that private employers added 90,000 jobs in September, above the expected 70,000, after growth had slowed in the previous three months, as Investors Business Daily writes. “It is a strong report. After a three-month slowdown, job creation recovered and wage growth remained steady,” said ADP’s chief economist, Nela Richardson. The final reading of second-quarter GDP was also revised up to 2.2%, from 1.5% in the preliminary report.

Markets welcomed the easing. Futures for the Dow Jones, S&P 500 and Nasdaq rose by around 0.4% before the open, while the yield on 10-year Treasury bonds fell to around 5.23%, after Tuesday’s peak above 5.29% — the highest level since 2007. WTI oil rose slightly to around $90.30 a barrel and bitcoin moved near $85,000, as Investopedia reports.

The data are prompting traders to soften bets on another rate hike: the probability of a hike at the Fed’s late-October meeting fell to around 47%, from 71% a week earlier, after New York Fed President John Williams suggested the central bank could wait until December before raising rates again. Several other Fed officials are also due to speak on Wednesday, including Minneapolis President Neel Kashkari.

Inflation remains one of the central issues for the November 3 midterm elections. The Fed raised its interest rate in September for the first time in three years, trying to deflate the price surge fuelled by the war with Iran and high oil prices — and economists say today’s data may not fully remove the pressure for another monetary tightening before the end of the year.