October 2, 2023 — Personal Consumption Index Slows in August


The Fed’s preferred inflation indicator, the personal consumption index, increased by 0.1 percent in August, lower than the 0.2 percent expected. For the running 12-months, the index is up 3.9 percent, as expected. The increase was the smallest since November 2020. The last time the core PCE was this low February 2021.

In the same report consumer spending was up 0.4 percent in August, down significantly from July’s 0.9 percent. In real terms, spending was up 0.1 percent down from 0.6 percent in July.

The Fed sees the PCE index as an indicator, as it accounts for shifts in consumer behavior, showing when consumers choose to buy cheaper items over more expensive items. It is a very good indicator of the effect of the cost-of-living on purchase decisions.

The Fed is likely to be encouraged by the report, however, inflation continues to run above the 2 percent target. Traders give a 15 percent probability of another rate increase in November, down from 27.5 percent last week. The likelihood of a December rate increase fell to 31 percent from 42 percent a week earlier.