A closely watched measure of U.S. inflation rose the most on an annual basis in three decades, fueling concerns that price increases will last longer than expected and eventually hit consumer spending.
The personal consumption expenditures price gauge, which the Federal Reserve uses for its inflation target, rose 0.4% from a month earlier and 4.3% from a year earlier. The annual increase was the largest since 1991.
U.S. personal spending growth increased 0.8% from a month earlier, following a downwardly revised 0.1% decline in July, Commerce Department figures showed Friday. Spending in July was previously reported as a 0.3% gain.
The spending increase was driven by a jump in goods outlays, specifically food and household supplies, likely reflecting a shift away from activities like dining out and travel due to heightened health concerns.
Even though spending – which accounts for about two-thirds of gross domestic product – rose in August, the downward revision to the prior month points to “only a scant gain” in third-quarter outlays, according to a note from Wells Fargo & Co. Economists surveyed by Bloomberg expect the quarterly figure to rise 2.2% after increases above 10% for the previous two periods.
The median estimate in a Bloomberg survey of economists called for a 0.7% month-over-month increase in total spending and a 0.3% rise in the price index.
Stocks were higher as of 11:57 a.m. Friday in New York, the dollar fell and Treasuries were little changed.
Adjusted for inflation, spending in August also picked up after falling the previous month. Real personal outlays rose 0.4% in August after a revised decline of 0.5% in the prior month.
Inflation-adjusted spending on services rose 0.3% from a month earlier, marking a deceleration from the 0.7% gain in July. Merchandise outlays climbed 0.6% after a 2.6% drop, the report showed.
Supply has struggled to keep up with rapidly recovering demand since the start of this year, with companies looking to fill a record number of open positions and acquire the materials needed for production. Those constraints have pushed prices higher and corroded Americans’ buying power.
The core PCE, which excludes food and energy, rose 0.3% for a second month. The measure was up 3.6% from a year earlier, matching the highest since 1991.
Fed Chair Jerome Powell said this week that the supply-chain disruptions which have been lifting inflation rates around the world will ultimately prove temporary.
“It’s very difficult to say how big the effects will be in the meantime, or how long they will last, but we do expect that we’ll get back, we’ll get through that,” Powell said Wednesday while participating in a virtual panel event.
A senior White House official said after the report that supply chain bottlenecks related to semiconductors and transportation “appear to be stickier” than was expected one or two quarters ago. “We’re watching those risks, but we’re encouraged by the trend lines,” the official said, referring to the slower pace of month-over-month price growth in recent reports.
A separate report out Friday showed U.S. consumer sentiment edged higher in late September, though remained near a pandemic low.
Wages and Savings
Personal incomes, meanwhile, rose 0.2% after increasing 1.1% in the prior month due to a boost from an advance disbursement of the child tax credit. Wages and salaries climbed 0.5%.
Disposable personal income, or after-tax income adjusted for inflation, decreased 0.3% in August.
The saving rate — which has been had been elevated for months as a result of stimulus checks and enhanced unemployment benefits — dropped to 9.4% in August from 10.1%.
(Adds White House comments.)
–With assistance from Matthew Boesler, Reade Pickert, Cécile Daurat and Scott Lanman.