Washington (AFP) – The US Federal Reserve’s preferred inflation measure edged up in August as tariffs filtered through the economy, while analysts warn of further cost pressures after President Donald Trump unveiled a slew of upcoming duties. But personal spending also rose last month, pointing to resilience in consumption — a key driver of the world’s biggest economy.
The personal consumption expenditures (PCE) price index rose 2.7 percent last month on a year-on-year basis, up from July’s 2.6 percent, the Department of Commerce said Friday. But the PCE price index, when excluding the volatile food and energy sectors, increased at a rate of 2.9 percent, the same as in July. Trump told reporters Friday that the country had “virtually no inflation,” stressing that the economy was doing well.
But both PCE figures are notably above the central bank’s longer-run inflation target of two percent, adding to pressure on the Fed as it adjusts interest rates. The Fed walks a tightrope between reining in inflation and maintaining the labor market’s health. This month, policymakers lowered rates for the first time in 2025 as employment weakened. But inflation continues to inch up, even if tariffs have had a relatively limited impact on costs for now — complicating the path forward.
Trump this year slapped a sweeping 10-percent duty on imports from almost all trading partners, before hiking this to various steeper levels on dozens of economies. Businesses have been grappling with higher costs as a result, although they have not passed the burden on to consumers entirely — partly as they stocked up on inventory in anticipation of tariffs and also as they are wary of how much price hikes buyers will tolerate.
– Shaky ground – “The PCE price indexes show inflation creeping higher as tariffs push up a range of goods prices,” said Oxford Economics’ deputy chief economist Michael Pearce in a statement. He estimates that about two-thirds of the tariff burden has fed through to consumers. But, he cautioned, “the range of new sectoral tariffs announced overnight mean further price pressures are likely on the way.”
On Thursday, Trump announced in a series of social media posts that he would slap steep duties on imports of heavy trucks, kitchen cabinets and other furniture, as well as certain branded or patented pharmaceutical products come October 1. The range of tariff levels goes from 25 percent for trucks to 100 percent on branded pharmaceuticals — unless companies built their manufacturing plants in the United States.
The recent spending momentum “lacks firm foundations,” warned economists Samuel Tombs and Oliver Allen of Pantheon Macroeconomics. The full effects of tariffs have yet to be seen, they said, while real after-tax income will likely remain stagnant through the end of the year, given weakness in the jobs market.
For now, on a month-on-month basis, the PCE price index was up 0.3 percent in August, also picking up slightly from July’s level. Personal spending rose 0.6 percent in the month, up from 0.5 percent in July, the report showed.
© 2024 AFP
