Key facts
- US inflation increased less than expected in August.
- Revised data showed July prices moderating.
- The Federal Reserve uses the PCE price index as its preferred inflation gauge.
- The PCE index accounts for changes in consumer spending patterns more quickly than the CPI.
- The Fed's inflation target is 2 percent.
US inflation increased less than expected in August, with more moderate price pressures than previously reported for the prior month. The Federal Reserve's preferred inflation gauge, the Personal Consumption Expenditures (PCE) price index, indicated that price pressures remained in August, although revised data suggested inflation was slightly lower than previously estimated. The Fed closely monitors this index as part of its dual mandate to promote maximum employment and stable prices, aiming for a 2 percent inflation rate over the longer run.
The PCE index, produced monthly by the US Bureau of Economic Analysis (BEA), has been the Fed's favored measure for consumer spending inflation for over two decades. The central bank officially adopted a 2 percent target for PCE inflation in 2012. This shift from the Consumer Price Index (CPI) was announced in February 2000 by then-Fed Chair Alan Greenspan, who had previously expressed concerns about the CPI's limitations.
The PCE index is favored because it accounts for changes in consumer spending patterns more quickly than the CPI, which updates its spending weights annually. While many item-level PCE prices are derived from the CPI database, the PCE's more frequent updates to expenditure weights provide a more consistent and adaptable measure of inflation across the economy.