DISCLAIMER: GoldInvestors.news is not a registered investment, legal or tax advisor or broker/dealer. All investment/financial opinions expressed by GoldInvestors.news are from the personal research and experience of the owner of the site and are intended as educational material. Although best efforts are made to ensure that all information is accurate and up to date, occasionally unintended errors and misprints may occur.

Consumer prices rose less than economists expected in August from a year earlier, according to the Federal Reserve’s primary inflation gauge. The Commerce Department report offered investors some relief, although inflation remained above the central bank’s target.

The personal consumption expenditures price index increased a seasonally adjusted 0.3% during the month. That placed the 12 month increase at 3.4%, compared with Dow Jones forecasts for gains of 0.3% and 3.7%, respectively.

Excluding food and energy, the PCE index climbed 0.2% and brought the annual core reading to 3%. Economists had expected monthly core inflation of 0.3% and an annual reading of 3.3%.

The Fed officially tracks the headline PCE figure, but officials generally view the core measure as a better indicator of longer term inflation trends. Both annual readings came in below expectations, but they remained well above the central bank’s 2% target.

The Bureau of Economic Analysis also changed how it calculates several portions of the index. The agency revised its methods for measuring prices related to legal services, software, computer accessories and portfolio management.

Those revisions lowered the July core PCE reading by 0.36 percentage point. The methodological changes added another layer to the report as policymakers and markets assessed whether inflation was easing enough to alter the expected course of interest rates.

Stock market futures advanced after the release, while Treasury yields were negative. Traders reduced the probability of another Fed rate increase in October and shifted expectations for the next increase toward December.

“This is good news for investors worried about the recent surge in bond yields, and it bolsters the case for not hiking in October,” said David Russell, global head of market strategy at TradeStation. “However, it’s also relatively old data at this point that doesn’t reflect this month’s surge in diesel prices.”

The report showed personal income rising 0.2%, below the 0.4% consensus forecast. Consumer spending increased 0.9%, exceeding expectations for a 0.8% gain and pointing to continued strength in household outlays.

Inflation remained high enough to leave another Fed increase on the table at one of its remaining meetings this year. The central bank had raised rates in September, and markets increasingly viewed December as the more likely timing for an additional move.

“Even after major methodological revisions, PCE inflation is still running hot however you cut it,” said Sonu Varghese, global macro strategist at Carson Group. “The economy is running hot, policy remains easy, and the Fed’s challenge is figuring out how much restraint is needed. That’s a tailwind for stocks as we move into Q4.”

Energy costs were the main driver of August’s price increase. Gasoline prices jumped 4.4%, transportation services rose 1.4%, and energy goods and services climbed 2.3%, while prices for both goods and services increased 0.3%.

“The PCE Inflation data – the Federal Reserve’s favorite – show no progress in August on inflation,” said Heather Long, chief economist at Navy Federal Credit Union. “And it’s inevitable that September will be higher. Meanwhile, American consumers are feeling the squeeze.”

Separate Commerce Department data showed gross domestic product expanding at a 2.2% annualized rate during the second quarter. That final estimate was sharply above the previous 1.5% reading and reflected stronger contributions from consumer spending, government spending and investment.

Real final sales to private domestic purchasers, a measure Fed officials use to evaluate underlying demand, rose 4.6%. The figure represented an upward revision of 0.4 percentage point.

Inflation readings for the April through June period were also revised slightly lower. Headline PCE prices increased 5%, while core prices rose 3.3%, with both measures coming in 0.3 percentage point below the earlier estimate.

New York Fed President John Williams had already tempered expectations for an October increase with comments Tuesday. “With the policy action we took at our September meeting, there is no need for urgency, and we have time to gather more information,” Williams said.

Williams added that another hike “may be appropriate late this year.” Combined with Wednesday’s inflation figures, those remarks pushed market expectations away from October and toward December, even as inflation remained above target and economic demand continued to show strength.

DISCLAIMER: GoldInvestors.news is not a registered investment, legal or tax advisor or broker/dealer. All investment/financial opinions expressed by GoldInvestors.news are from the personal research and experience of the owner of the site and are intended as educational material. Although best efforts are made to ensure that all information is accurate and up to date, occasionally unintended errors and misprints may occur.