U.S. core PCE inflation cools to 3.0% as consumer spending surges

U.S. inflation rose less than expected in August, according to the Commerce Department’s Personal Consumption Expenditures report released Wednesday, easing near-term pressure on the Federal Reserve even as households kept spending at a robust clip.

The headline PCE price index climbed 0.3% on the month and 3.4% from a year earlier, below Reuters forecasts of 0.4% and 3.7%. Core PCE, which strips out food and energy and is the Fed’s preferred gauge, rose 0.2% monthly and 3.0% year over year — also cooler than expected. The Bureau of Economic Analysis simultaneously published an annual update that revised price methodology for software, portfolio management fees and legal services back to 2021, pulling July’s year-over-year readings lower as well.

Consumer spending jumped 0.9% in August, or 0.6% after inflation, after a barely revised July gain. Personal income rose 0.2% and disposable income 0.3%, while the saving rate slipped to 4.1% from 4.6%. Economists said AI-driven equity wealth, earlier savings buffers and still-resilient middle-income cash flow are supporting demand despite record diesel prices and the U.S.-Israeli war with Iran.

Markets trimmed October rate-hike odds to roughly 35% after New York Fed President John Williams said there was “no urgency” to move again soon. BMO’s Sal Guatieri cautioned that cooler August prices may let the Fed skip Oct. 28, but elevated inflation and a sturdy consumer still point to another hike by year-end. For Canadian markets watching the U.S. cycle, the mix is clearer near-term data — and a still-open path for tighter policy into winter.

Not investment advice.

Sources: Personal Income and Outlays, August 2026 — U.S. Bureau of Economic Analysis: https://www.bea.gov/news/2026/personal-income-and-outlays-august-2026 | Fed’s preferred gauge showed core inflation at 3.0% in August — CNBC: https://www.cnbc.com/2026/09/30/feds-preferred-gauge-showed-core-inflation-at-3point0percent-in-august-much-lighter-than-expected.html | U.S. inflation rises below expectations; consumer spending robust — Reuters via Star-Advertiser: https://www.staradvertiser.com/2026/09/30/breaking-news/u-s-inflation-rises-below-expectations-consumer-spending-robust/