A key inflation indicator showed higher-than-expected increases in core prices in August, adding more pressure on the Federal Reserve to act despite the risk of a deeper recession.

Consumer prices increased by 6.2% in August compared to the same month one year ago, according to the Commerce Department’s Personal Consumption Expenditures index — the Fed’s preferred measure of inflation. The annual rate was down from 6.4% in July.

Prices rose by 0.3% compared to the previous month.

The core PCE, which excludes volatile food and energy prices, increased by a hotter-than-expected 4.9% year-over-year in August, or by 0.6% compared to July.

Ahead of the release, economists expected core PCE inflation to increase by 4.7% year-over-year and by 0.5% compared to July.

The PCE inflation gauge is one of many data points the Federal Reserve uses to inform its policy path. Earlier this month, the Fed hiked its benchmark interest rate by three-quarters of a percentage point for the third consecutive time as it doubled down on the fight against inflation.

The Fed’s hawkish stance has spooked investors who fear the central bank’s rate hikes will tip the US economy into a deep recession. Meanwhile, the Fed has pledged to adjust its path based on the data it receives.

“The [Federal Open Markets Committee] is strongly resolved to bring inflation down to 2% and we will keep at it until the job is done,” Fed Chair Jerome Powell said at a press conference earlier this month.

Ex-Treasury Secretary Larry Summers warned this week that the level of global market risk is similar to conditions seen prior to the Great Recession – and pointed to inflation-related discomfort as a key obstacle for policymakers.

Supermarket
The Fed is expected to enact more rate hikes this year.
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Chicago Fed President Charles Evans, a non-voting member of the rate-setting FOMC, said he was “a little nervous” the Fed was hiking rates too rapidly to fully assess the impact on markets.

Another closely watched gauge, the Consumer Price Index, showed earlier this month that inflation ran at a hotter-than-expected 8.3% in August. Core CPI inflation, which excludes volatile food and gas prices, rose 6.3% year-over-year — up sharply from the rate of 5.9% seen in June and July.

Gas station
Market analysts are increasingly fearful of a global recession.
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As The Post reported, inflation has increased 13% since President Biden took office. Critics of the Biden administration argue the president’s government spending programs and restrictive energy policies have helped to fuel inflation.

Meanwhile, Biden and his allies have argued inflation is showing signs of improvement – and largely placed the blame for higher prices on aftershocks related to the COVID-19 pandemic as well as Russian President Vladimir Putin’s invasion of Ukraine.



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