United States inflation increased less than expected in August, with the Personal Consumption Expenditures (PCE) Price Index rising 0.3%. Data released by the Commerce Department on Wednesday, Sept. 30, 2026, also showed that annual PCE inflation stood at 3.4%. While monthly price growth was driven largely by a 4.4% rebound in gasoline prices, the overall annual figures were impacted by methodology changes by the Bureau of Economic Analysis (BEA) affecting how the government calculates costs for software, legal services, and portfolio management.
The new data follows a period of heightened economic uncertainty fueled by the U.S.-Israeli war with Iran, which has raised energy prices. Earlier in the month, a separate report on the Consumer Price Index (CPI) indicated that prices had risen 3.4% year-on-year through August, with core inflation rising 0.3% month-over-month. Federal Reserve officials have remained divided on future policy, with Chairman Kevin Warsh previously stating inflation remains too high, while New York Fed President John Williams recently saw "no urgency" for immediate action.
Despite rising costs, consumer spending surged 0.9% in August, following a revised 0.1% gain in July. This resilience in spending helped support a 2.2% growth rate for gross domestic product (GDP) in the second quarter. However, personal income rose 0.2% in August, and the personal saving rate fell to 4.1%, from 4.6% in July. Additionally, the U.S. goods trade deficit widened by 11.5% to $132.6 billion as imports climbed 5.5%, creating a potential drag on third-quarter economic growth.
The scale of the economic shift is reflected in specific price increases. Renters and homeowners saw shelter costs jump 0.3% in August according to CPI data, while travelers faced a 23.4% increase in airfare compared to last year. Consumers are also seeing higher costs for technology, with computer prices rising 8.4% annually amid demand for artificial intelligence chips. These increases, alongside a drop in the personal saving rate to 4.1%, mean Americans are setting aside less money.
The report also includes methodology changes by the BEA that lowered core PCE inflation by approximately 36 basis points. These technical adjustments, combined with a widening trade deficit, suggest that while domestic demand remains high, external factors like the Middle East conflict continue to pressure energy markets. The Federal Reserve's next move will be determined during its two-day policy meeting concluding on Oct. 28, where officials will weigh the resilient consumer against the goal of returning inflation to a 2% target.
What happens next: The Federal Reserve is scheduled to meet on Oct. 27-28, 2026. Prior to that, investors will monitor energy prices and labor market data. While some economists at BMO Capital Markets suggest the August data buys the Fed time, others indicate that a year-end hike remains possible. The central bank continues to track PCE measures as its primary gauge for its 2% inflation target.