US inflation rises less than expected in August; consumer spending surges

(Corrects year-on-year PCE price index increase ‌to 3.4% from ​2.6% in ​paragraph 2 due to technical error in data publication)

WASHINGTON, Sept 30 (Reuters) - U.S. inflation increased less than expected in August, which could see financial markets further reduce the odds ‌of another interest rate increase from the Federal Reserve next month.

The Personal Consumption ⁠Expenditures Price Index rose 0.3% last month after a downwardly revised 0.1% gain in July, the Commerce Department's Bureau of Economic ‌Analysis said on Wednesday. Economists ‌polled by Reuters had forecast the PCE price index rising 0.4% after a previously reported 0.2% gain in July. In the 12 months through August, PCE inflation advanced 3.4% after increasing by ​a downwardly revised 3.4% in July.

PCE inflation was previously reported to have increased 3.7% in July on a year-on-year basis. The BEA changed its methodology for calculating prices for software and accessories, ⁠portfolio management fees and legal services in the PCE price index. It also revised the inflation data going back to 2021.

Excluding the ​volatile food and energy components, the PCE Price Index climbed 0.2% over the month after a downwardly revised 0.1% rise in July. The so-called core PCE ​inflation was previously estimated to have gained 0.2% in July.

Core ‌PCE inflation increased 3.0% year-on-year in August after a downwardly revised 3.0% advance in July. Underlying inflation was initially estimated to have risen 3.3% in the ⁠12 months through July.

The US central bank tracks the PCE price measures for its 2% inflation target. The Fed this month raised its benchmark overnight interest rate to the 3.75%-4.00% range, the first rate hike in three ⁠years, and flagged further increases in borrowing costs in the months ahead.

The odds of an October rate hike were ​diminished by New York Fed President John Williams' comments on Tuesday that he saw "no urgency" for further action. Prior to the inflation data, financial markets priced-in a roughly 51.5% chance of further policy tightening next month down from 70% ‌on Monday, CME's FedWatch Tool showed.

Higher inflation and borrowing costs could crimp consumer spending. A survey from the Conference Board on Tuesday showed consumer confidence plummeting ‌to a near 12-1/2-year low in September. There are, however, no signs yet of consumers significantly dialing back.

Consumer ⁠spending, which accounts for more than two-thirds ‌of economic activity, surged 0.9% ​last month after a downwardly revised 0.1% gain in July, the BEA said. Spending was previously estimated to have gained 0.2% in July.

(Reporting by Lucia Mutikani; Editing by ‌Chizu Nomiyama)

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