WASHINGTON – A key inflation index in August came near the US Federal Reserve’s target, according to data released on Friday. Monetary policy makers reaffirmed their intention to raise interest rates by next year.
The consumer price index rose 0.1% yoy and 2.2% yoy, partly due to the sharp rise in oil prices this year, the ministry said Friday. from trade. The PCE base price index, which excludes volatile food and energy prices, remained flat against July in July but rose 2% yoy.
Fed makers seeking inflation at 2% see ECP core prices as a reliable indicator of the underlying price pressures.
Economists expected a weak PCE index after other inflation factors such as the consumer price index saw a decline in commodity prices last month. This may have been caused by a recent appreciation of the dollar, said Sarah House, senior economist at Wells Fargo. The WSJ Dollar Index, which measures the greenback against a basket of other currencies, has risen 7% since mid-April. A strong dollar tends to make imported products cheaper.
The median estimate of a Wall Street Journal study on economists favored a rise in PCE core prices of 0.1% in July and 1.9% yoy in August.
Despite the slowdown last month, inflation this year has consolidated around the Fed’s target after most of the recovery. An increase in economic growth this year has pushed the unemployment rate down to levels that many economists consider sustainable, while growth in revenue and expenditure accelerated.
Friday’s report also showed that US consumer earnings and spending rose 0.3% in August, reflecting strong domestic demand.
Fed officials expect much of inflation over the next few years to meet or exceed its official target. Wednesday’s quarterly US economic forecast showed that the ECP inflation rate ranged between 2% and 2.3% between 2019 and 2021.
“The recent surge in oil prices has increased inflation by a good 2%, but we expect it to be temporary,” Fed Chairman Jerome Powell said at a news conference. Press this week. “Growth is good, unemployment is low, employment is rising steadily and wages are rising, inflation is low and stable, which is a very good sign.”
Policymakers tried to avoid inflationary pressures by raising interest rates three times this year to between 2% and 2.25%. Most Fed monetary policy makers expect interest rates to rise four times in December 2019 and 2020 in total.
Yet many economists at the Fed and outside the Fed say that the central bank is narrower than it was a long time ago to achieve its dual mandate: maximum employment and stable prices.
“You seem to feel pretty comfortable where things are,” House said. “Even if inflation exceeds its current expectations, if it’s only a few tenths, I think they will do pretty well.”