Inflation held steady in August, countering fears of runaway price surges

• The PCE inflation measure rose 0.4% in August, reflecting steady price growth as the Delta wave slowed the economy.
• The reading matched the 0.4% median forecast and marked a fourth month without accelerating inflation.
• The inflation data suggests price growth is stabilizing as the Biden administration and Federal Reserve anticipated.

Prices for common goods in the US expanded as expected in August, further signaling that the inflation surge seen earlier in the summer is petering out.

The Personal Consumption Expenditures price index - a popular measure of nationwide inflation - climbed 0.4% in August, the Commerce Department announced Friday. That matched the median forecast from economists surveyed by Bloomberg. It also echoes the 0.4% jump seen in July.

The index gained 4.3% year-over-year, slightly exceeding the median estimate of 4.2% growth.

The core PCE index, which strips out volatile food and energy prices, jumped 0.3% in August. That compares to a median forecast of 0.2% growth and matches July's 0.3% jump.

Core PCE is the inflation metric of choice for the Federal Reserve, which guides US price growth and sets interest rates accordingly. The central bank has long said it expects the current bout of stronger inflation to be transitory, meaning it will subside as reopening ends and supply chains heal. The Biden administration has also subscribed to that outlook.

Recent inflation prints suggest that soaring prices just might, in fact, be temporary. While year-over-year readings remain elevated, monthly PCE gains have nearly halved from the 0.6% surge seen in April. And while the PCE data shows price growth holding steady, other inflation measures have revealed a sharper deceleration.

The Consumer Price Index rose just 0.3% in August, slowing from a 0.5% gain in July. Price growth was concentrated in energy and food costs. Categories that powered much of the spring surge wilted. Used vehicle prices fell 1.5% after climbing at least 7.3% from April to June. Shelter costs - which include rent and hotels - jumped just 0.2%, half the increase seen in July.

Encouragingly, the weaker inflation isn't linked to a spending slump. Despite soaring Delta case counts, retail sales rose 0.7% in August, beating forecasts for a 0.8% decline. Retail sales are a commonly used proxy for overall spending, and the mid-September report showed Americans shifting their spending to e-commerce stores as COVID wave worsened and mask-wearing rules were reinstated.

Since consumer spending counts for 70% of economic activity, the bounce in sales signaled the recovery remained healthy. And the latest inflation print reflects the US can have strong spending without worrying levels of price growth.