US inflation outlook brightens as underlying price pressures subside

investing.com:

By Lucia Mutikani

WASHINGTON (Reuters) — Underlying U.S. inflation moderated in August, with the annual rise in prices excluding food and energy falling below 4.0% for the first time in more than two years, welcome news for the Federal Reserve as it ponders the monetary policy outlook.

The battle against inflation is, however, far from being won as the report from the Commerce Department on Friday showed overall prices were still elevated, partly due to higher gasoline prices.

While the economy remains strong, consumer spending is slowing, which combined with cooling underlying price pressures raised hopes that the U.S. central bank will not hike interest rates in November. The consumer spending and inflation report is probably the last official economic data release before an expected partial shutdown of the U.S. government due to begin after midnight on Saturday. A lengthy data blackout also could make the Fed reluctant to raise interest rates at its Oct. 31-Nov. 1 meeting.

«This report suggests that there's progress on inflation,» said Conrad DeQuadros, senior economic advisor at Brean Capital in New York. «I think Fed officials are at the point where they're shifting the focus to how long do we keep rates at these high levels, rather than how much higher the rates have to go.»

The personal consumption expenditures (PCE) price index, excluding the volatile food and energy components, edged up 0.1% last month. That was the smallest rise since November 2020 and followed a 0.2% advance in July. Economists polled by Reuters had forecast the core PCE price index would climb 0.2%.

In the 12 months through August, the so-called core PCE price index increased 3.9%. It was the first time since June 2021 that the annual core