Core prices rose 3.0% on revised history, the month was faster, and growth was marked up
The Bureau of Economic Analysis said Wednesday that prices excluding food and energy rose 3.0% in the year through August, below a 3.3% forecast, after it revised recent inflation lower and marked second-quarter growth up to an annual rate of 2.2%.
Key takeaways
Prices excluding food and energy, the core rate, rose 3.0% in the year through August, the Bureau of Economic Analysis said Wednesday. The same morning, it marked second-quarter growth up to an annual rate of 2.2%.
From July to August, prices rose faster. The broader price index, which includes food and energy, rose 0.3% on the month and 3.4% from a year earlier. That index is the measure the Federal Reserve uses for its 2% goal.
The core rate rose 0.2% on the month, up from a revised 0.1% in July, and the broader index was up from 0.1% as well.
Economists surveyed by Econoday had expected 3.3% for the core rate over the year, and 3.7% for the broader index. The core reading was also below that survey's range of 3.1% to 3.6%. The monthly core increase was still 0.1 percentage point under a 0.3% forecast.
Those forecasts were made on the figures available before Wednesday. The revision of the accounts goes back to January 2021, and July's monthly price increases are now 0.1%, not the 0.2% first reported.
The growth report cut the second-quarter price index for consumer spending by 0.3 percentage point, and the core version by the same amount. It cut first-quarter core inflation by 0.5 percentage point. Those are quarterly rates, a three-month pace stated as a year, not the change from a year ago.
Our read is that the gap to the 3.3% forecast mixes a new month with a rewritten past, and the month itself was faster, not softer.
That 2.2% figure is an annual rate, revised up from 1.5%. The first quarter was revised up to an annual rate of 2.5%, from 2.1%. The Bureau said higher investment, consumer spending and government spending drove the second-quarter markup. It said the investment change was led by commercial and health care construction, mainly data centers.
The income earned producing that output was revised up too. It rose at a 2.6% annual rate in the second quarter, revised up from 2.2%, and the first quarter was revised up 1.3 percentage points, to 2.5%, led by higher pay.
August saving was $990.2 billion, 4.1% of after-tax income, against the $712 billion and 3.0% rate the Bureau had published for July before the update. In August, spending rose 0.6% after inflation and after-tax income was flat. Spending ran ahead of income in the month, while the new saving level sat above that old July figure.
By 9:55 a.m. Eastern, the 10-year Treasury yield was slightly lower, at 5.24%, and the 30-year yield was slightly higher, at 5.60%, close to its highest level of the past year. The fund that holds U.S. government bonds maturing in more than 20 years, TLT, was down 0.2%.
The U.S. dollar index was down 0.4%. The fund that holds the S&P 500, SPY, was up 0.4%.
The next rate vote
On Thursday, September 3, Federal Reserve Governor Christopher Waller said the August inflation data then due would "heavily influence" his decision. Continued progress toward the 2% goal, he said, would leave him willing to hold the benchmark rate. If inflation came in hot, he said, he would consider an increase.
The Federal Reserve raised that rate on Wednesday, September 16, to a range of 3.75% to 4%.
"The plain fact is that inflation is too high and has been for too long," Chairman Kevin Warsh said.
New York Fed President John Williams spoke in Buffalo on Tuesday, a day before the report.
"With the policy action we took at our September meeting, there is no need for urgency, and we have time to gather more information."
Any next increase, he said, would wait on his forecast.
"If the economy evolves in a manner broadly consistent with my forecast, one further upward adjustment of the federal funds target range may be appropriate late this year to support a timelier return of inflation to target."
The next vote is on Tuesday and Wednesday, October 27 and 28. Wednesday's mix is what sits in front of the condition he set: a 3.0% yearly core rate on revised history, a faster month, and growth marked up from an annual rate of 1.5% to 2.2%. Whether that mix moves anyone is the question he left open.
Frequently asked
Why was core inflation below the 3.3% forecast?
The gap mixes a new month with a rewritten past, and the month itself was faster, not softer.
How fast did prices rise from July to August?
The core rate rose 0.2% on the month, up from a revised 0.1% in July, and the broader price index rose 0.3%.
How much was second-quarter growth marked up?
Second-quarter growth was marked up to an annual rate of 2.2% from 1.5%.
How far back does the revision go?
The revision of the accounts goes back to January 2021, and July's monthly price increases are now 0.1%, not the 0.2% first reported.
