No Change in CPI Inflation Ahead of Interest Rate Decision - but Another Measure PCE Ticks Unexpectedly Up

CPI Inflation Unchanged, but PCE Price Index Rises

The Consumer Price Index (CPI), a closely watched measure of inflation, remained unchanged in August, according to data released by the Bureau of Labor Statistics. This was in line with economists' expectations and suggests that inflation may be easing after reaching a 40-year high earlier this year.

However, another measure of inflation, the Personal Consumption Expenditures (PCE) Price Index, unexpectedly rose by 0.3% in August. The PCE Price Index is the Federal Reserve's preferred measure of inflation, and its unexpected increase could raise concerns that inflation is not cooling as quickly as hoped.

Implications for Interest Rate Decision

The Federal Reserve is widely expected to raise interest rates by 50 basis points at its meeting next week. The unchanged CPI inflation reading is unlikely to change that expectation, but the unexpected rise in the PCE Price Index could lead to a larger-than-expected rate hike.

A larger-than-expected rate hike would be a sign that the Fed is becoming more concerned about inflation. It would also likely lead to higher interest rates on mortgages, credit cards, and other types of loans.

Outlook for Inflation

The outlook for inflation is uncertain. The CPI inflation reading suggests that inflation may be easing, but the unexpected rise in the PCE Price Index suggests that it may be too early to say definitively.

The Fed is likely to continue raising interest rates until it is confident that inflation is under control. However, it is also aware that raising interest rates too quickly could lead to a recession.

Conclusion

The unchanged CPI inflation reading is a positive sign, but the unexpected rise in the PCE Price Index is a reminder that inflation is still a concern. The Fed is likely to continue raising interest rates until it is confident that inflation is under control.