Fed Focus Indicator Rises Less Than Expected! Is This Good News?

<p>&nbsp;US consumer output rose in August, but core inflation slowed, with annual price increases excluding food and energy easing to below 4.0%.</p><p><br /></p><p>Consumer spending, which accounts for more than two-thirds of US economic activity, rose 0.4% last month, according to a report from the Board of Trade that reported on Friday. Data for the month of July has been updated to show an increase in production of 0.9% compared to the previously reported 0.8%. Economists on the other hand have predicted production will increase by 0.4%.</p><p><br /></p><p>Part of last month's production increase reflected higher prices. Gasoline prices rose in August, reaching $3,984 a gallon in the third week of the month, the highest this year, according to data from the US Energy Information Administration. Contrasted with $3.676 a gallon during the same period in July.</p><p><br /></p><p><br /></p><p>With the increase in petrol prices, inflation as measured by the personal consumption price index (PCE) increased by 0.4% in August after rising by 0.2% in July. In the 12 months to August, the PCE price index rose 3.5% after rising 3.4% in July. Annual PCE inflation also increased driven by lower policy comparisons in the previous year, as core inflation pressures eased.</p><p><br /></p><p>Excluding volatile food and energy components, the PCE price index rose 0.1%, after rising 0.2% in the previous month. The core PCE price index rose 3.9% year-on-year in August after rising 4.3% in July.</p><p><br /></p><p>The US central bank is eyeing the PCE price index for a 2% inflation target. The Fed kept interest rates steady last week but strengthened a more accommodative monetary policy. Since March 2022, the central bank has increased the policy rate by 525 basis points to the current range of 5.25% to 5.50%.</p>