US energy prices climb as August core inflation comes in below forecasts

US energy costs rose in August even as annual inflation came in below forecasts, easing market expectations of another Federal Reserve interest rate increase in October. CNBC Economy reported that the Commerce Department’s personal consumption expenditures price index increased 0.3% over the month and 3.4% from a year earlier. Economists surveyed by Dow Jones had expected an annual rise of 3.7%.

Energy was the largest contributor to the monthly price increase. Petrol prices climbed 4.4%, while energy goods and services overall rose 2.3%. Transport services increased 1.4%. Excluding food and energy, the core PCE index advanced 0.2% on the month and 3% annually, below forecasts of 0.3% and 3.3%, respectively. The Fed formally targets headline PCE inflation, although officials regard the core measure as a more useful guide to longer-term pressures.

The lower-than-expected annual readings coincided with changes to the Bureau of Economic Analysis’s methods for measuring several components, including legal services, software and computer accessories, and portfolio management. Those revisions reduced July’s core PCE inflation reading by 0.36 percentage points, CNBC Economy reported. Both headline and core inflation nevertheless remained above the central bank’s 2% target.

Stock futures rose after the release and Treasury yields fell as traders reduced the likelihood of an October rate increase, shifting expectations towards December. TradeStation’s global head of market strategy, David Russell, said the figures strengthened the argument for holding rates steady in October. He cautioned, however, that the August data did not capture September’s sharp increase in diesel prices.

Household spending rose 0.9%, exceeding the 0.8% consensus forecast, while personal income increased 0.2%, below expectations of 0.4%. Separately, the Commerce Department revised second-quarter annualised economic growth to 2.2% from 1.5%, reflecting larger contributions from consumer spending, government expenditure and investment. Underlying private domestic demand was also revised higher.

The figures followed comments from New York Fed President John Williams that had already tempered expectations of an imminent move. Williams said the Fed had time to assess further information after its quarter-percentage-point September increase, while leaving open the possibility of another rise late in the year.