Core Inflation Holds at 2.9% in August as Consumer Spending Strengthens

The latest inflation report from the U.S. Commerce Department showed modest but steady price increases in August, while consumer activity remained resilient. The Personal Consumption Expenditures (PCE) price index, the Federal Reserve’s preferred inflation gauge, rose 0.3% from July and 2.7% over the past year, an uptick from 2.6% in July.

The more closely watched core PCE price index, which excludes food and energy, increased 0.2% for the month and held at 2.9% year over year. This marks the second consecutive month with core inflation below 3 percent, though still above the Fed’s 2 percent target. Both monthly and annual figures were in line with economist forecasts.

Category Breakdown
The report highlighted differences across categories of spending.

• Goods prices rose 0.1 percent in August.
• Services increased 0.3 percent.
• Food climbed 0.5 percent.
• Energy goods and services jumped 0.8 percent.
• Housing costs moved up 0.4 percent.

These figures show a continuation of the pattern seen through much of 2025, with services inflation remaining more persistent than goods inflation.

Household Income and Spending
Consumer activity once again outpaced expectations. Personal income increased 0.4 percent in August, while personal consumption expenditures grew 0.6 percent. Both measures came in slightly higher than forecasts. The personal saving rate rose to 4.6 percent, up from 4.4 percent the previous month.

The Commerce Department data also showed that households have continued to spend steadily through the summer months. Strong readings in June and July carried into August, suggesting that consumers have not pulled back significantly in the face of tariffs and ongoing inflation pressures.

Monetary Policy Outlook
The Federal Reserve recently approved its first rate cut of the year, lowering the benchmark federal funds rate by a quarter point to a range of 4.0 to 4.25 percent. Policymakers signaled that they expect two more quarter-point reductions before the end of 2025, though market expectations currently point most strongly to an October move.

Financial markets responded positively to the August report. Stock futures rose, Treasury yields declined, and the U.S. dollar weakened slightly as investors anticipated additional easing from the Fed.

Impact of Tariffs
The report also indicated that the latest round of tariffs has so far had a limited impact on overall consumer prices. While food and energy categories posted stronger monthly gains, many companies appear to be absorbing costs or relying on pre-tariff inventories. Federal Reserve officials, including Chair Jerome Powell, have said they expect the effect of tariffs to be temporary, though some policymakers remain cautious about risks to inflation later in the year.

Economic Context
With headline inflation at 2.7 percent and core inflation at 2.9 percent, both measures remain above the Fed’s stated target of 2 percent but well below the peaks reached in 2022 and 2023. The steady cooling of inflation, combined with strong household spending, has been viewed by many analysts as a sign that the economy continues to expand despite trade policy headwinds.

Winning With Walmart

Winning With Walmart is an independent platform for suppliers, sellers, solution providers, and industry experts.

Articles are developed by staff editors, contributing experts, and trusted partners.

Some are researched and drafted with the assistance of AI tools and are reviewed, fact-checked, and edited by Winning With Walmart editors before publication.

Editorial judgment, sourcing decisions, and final approval rest with the publication's human editors in every case.

We are committed to accuracy and fairness. If you believe this article contains an error, we welcome your feedback.