By Chuck Mikolajczak
NEW YORK (Reuters) -The U.S. Commerce Department said on Friday its Personal Consumption Expenditures Price Index (PCE) rose 0.3% in August, versus the prior 0.2% rise in July and matched the estimate of economists polled by Reuters.
In the 12 months through August, PCE inflation increased 2.7% after climbing 2.6% in July. Stripping out the volatile food and energy components, the so-called core PCE Price Index increased 0.2% last month. That followed a revised 0.2% rise in the core inflation in July.
In the 12 months through August, core inflation advanced 2.9% after rising 2.9% in July. The Federal Reserve tracks the PCE price measures for its 2% inflation target.
MARKET REACTION:
STOCKS: S&P 500 E-mini futures rose and were up 17 points, or 0.26%.
BONDS: U.S. Treasury yields slipped and the 10-year yield was last off 0.6 basis point at 4.178% and the two-year yield shed 1.4 basis points to 3.649%.
FOREX: The dollar index weakened and was off 0.25% to 98.252.
COMMENTS:
DOUG BEATH, GLOBAL EQUITY STRATEGIST, WELLS FARGO INVESTMENT INSTITUTE, BOSTON
“It’s a pretty good report, certainly on the consumer spending side, which exceeded expectations. That follows up yesterday’s GDP report, the third revision, which indicated higher consumer spending. Then, the inflation numbers, both the headline and the core met expectations.
“This should give some reassurances particularly on the inflation side. This is the number one indicator the Fed looks at.
“You have higher consumer spending but at the same time the inflation numbers were in line with expectations. Yesterday’s stock market volatility in part, was due to stronger economic growth and fears that would lead to less Fed rate cuts going forward, and that’s been one of the cornerstones of this significant rally since April 8.”
GENNADIY GOLDBERG, HEAD OF US RATES STRATEGY. TD SECURITIES, NEW YORK:
“Net-net, the data is showing that consumers continue to spend and that the economy may not be slowing quite as quickly as anticipated. The other side of the data, the price levels numbers, came in largely in line with expectations. There’s still firmness in the inflationary side, but you saw the year-on-year core remain largely unchanged at 2.9%, as expected, and you saw the headline move up just a little bit to about 2.7%. And we’re still expecting some more upside in both of those gauges over the next few months as we continue to see trade disruptions pass through. But I think markets are becoming a little bit more sanguine about inflation pass through, given the extent of the move, and given the fact that the economy’s not really falling off a cliff, and I think that’s really being viewed as a positive.”
PETER CARDILLO, CHIEF MARKET ECONOMIST, SPARTAN CAPITAL SECURITIES, NEW YORK:
“Bottom line is that inflation remains sticky, but it’s showing no signs of accelerating that would hinder the Fed from at least cutting one more time before year-end. And that’s taking into consideration that most of the macroeconomic indicators were a bit stronger than expected, in terms of personal income as well as consumer spending.
“It’s good news for the markets. We’re seeing yields come in a little bit, we’re seeing the dollar a little bit lower, but that of course could be due to the new tariffs that were announced by President Trump.
“As I said, I think today’s inflation news says that will get one more rate cut. Two rate cuts, that’s probably a coin toss now.”
KIM FORREST, CHIEF INVESTMENT OFFICER, BOKEH CAPITAL PARTNERS, PITTSBURGH:
“The big question is if the Fed still going to be overweighted on concern about employment or does it think it needs to, once again, pay more attention to inflation.
“I think because the numbers were perhaps a little hotter than anticipated, but not anything outstanding, the Fed is probably still going to look at next week’s numbers to see how the labor market’s holding up. I think labor markets are more important to the Fed.”
(Compiled by the Global Finance & Markets Breaking News team)
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