Core inflation remained unchanged at 2.9% in August. This is based on the most recent data, which have just been released, from the Federal Reserve’s personal consumption expenditures (PCE) price index. In a surprising twist, the headline annual CPI inflation rate rose by a tick to 2.7%, up from 2.6% in July. Such stability is a good sign of sustained economic predictability. Positive Consumer Signals Overall, positive news from the report, with consumers showing strong spending tendencies and personal income up 0.4% for the month.
The overall PCE price index had a 0.3% advance in August, led by significant advances in both food and energy prices. Food prices increased by 0.5%, but energy goods and services, a much larger percentage, increased by 0.8%. On top of that, goods prices went up by 0.1%, while services jumped 0.3%. Housing costs were a big driver of the overall increase, coming in with a 0.4% increase.
Yet they found that President Donald Trump’s tariffs have largely failed to raise consumer prices. In light of all that volatility, the pass-through effect is still quite small. This implies that tariffs have had a clear impact on specific sectors but no meaningful impact on the larger inflation picture.
Here are some thoughts on how consumers are behaving in this unusual time from Chris Rupkey, chief economist at Fwdbonds. Consumer resilience and consumer spending power came through with flying colors, including on his own firm’s growth, he said, quoting.
“Net, net, consumers literally hit it out of the park with very strong gains in spending not just for August, but June and July as well.”
He dubbed this spending boom “revenge spending.” This term perfectly captures the newfound ways that consumers are shopping following a period of unstable economic conditions. Rupkey points out that summer provided a lot of new options for consumers. After hiding at home during the first wave of tariffs in April and May, consumers rushed back into stores and shopping centers.
The data adds to the argument that personal consumption expenditures speeded up at an annualized clip of 0.6%. We’ve seen consumer spending tick up, which is a good sign. At the same time, the personal saving rate jumped to 4.6%, a 0.2 percentage point gain over prior months.