Annual core PCE, the Fed's preferred measure of inflation, rose 3.6% year-on-year in August, as expected. On a monthly basis, core PCE rose 0.3%, slightly below the projected 0.4%. Personal income rose 0.2% compared to the projected 0.3%, while personal spending rose 0.8%, beating estimates – still above the downward revision for July. Although the August CPI came in below expectations and provided some relief in terms of "tapering" in the markets, we expect the renewed price pressures to fuel inflation concerns about the current period and force Central banks to be a little cautious about the temporaryness of inflation. Rising industrial costs and new raw material and end product price pressures point to some renewed upward price pressures that can be supported in the coming months.
If we look at the details of the data; While disposable income decreased by 0.3% in August, we see a 0.4% increase in real PCE. Headline PCE, on the other hand, increased by 0.4% on a monthly basis. The increase in personal income in August mainly reflected increases in employee wages and government benefits. Within government benefits, the increase in "other" benefits, reflecting advance Child Tax Credit payments authorized by the American Recovery Plan, was partially offset by a decrease in unemployment insurance, reflecting decreases in payments from the Pandemic Unemployment Compensation program. Within goods, increases in spending on food and beverages, as well as "other" non-durable goods (mainly household appliances and leisure products), were partially offset by decreases in spending on motor vehicles and their parts. Within services, increases were common, led by "other" services (especially personal care and clothing services), housing and utilities, and health care.
As a result; Considering the personal expense effect, although demand is widespread, the effect of energy and raw material supply, which will bring the main externality effect on inflation, will increase the pressure. While August data alone may bring to the fore the view that there is still a long way to go for the Fed to meet the "tapering" requirement, the effect of renewed price pressures keeps the phenomenon of "over-projected inflation that needs to be brought under control" alive.
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