Inflation measure closely watched by the Fed fell to 2.2% in August

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  Invesco Global Market Strategist Brian Levitt says inflation has returned to its comfort zone on Barrons Roundtable.

An inflation gauge closely watched by Federal Reserve policymakers continued to slow in August as the pace of price growth trended closer to the Fed's target.

The Commerce Department reported Friday that the personal consumption expenditures (PCE) price index rose 0.1% from the prior month and 2.2% year over year. The annual figure came in cooler than the estimates of economists polled by LSEG.

Core PCE, which excludes volatile food and energy prices, rose 0.1% for the month and increased 2.7% from a year ago, in line with estimates and little changed from a month ago.

The Federal Reserve is focusing on the PCE headline figure as it tries to bring the pace of price increases back to 2%, although policymakers view the core data as a better indicator of inflation. Both the core and headline figures suggest that inflation is continuing to cool.

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The personal consumption expenditures price index showed prices rose 2.2% from last year, less than expected. (Photo by Mostafa Bassim/Anadolu via Getty Image / Getty Images)

«All quiet on the inflation front,» said Chris Larkin, managing director of trading and investing at E*Trade from Morgan Stanley. «Add today's PCE Price Index to the list of economic data landing in a sweet spot. Inflation continues to keep its head down, and while economic growth may be slowing, there's no indication it's falling off a cliff.»

The headline PCE data showed that prices for goods decreased 0.2% while prices for services increased 0.2% on a monthly basis in August. Food prices rose 0.1% and energy prices decreased 0.8%