US inflation sees August heat; defence lifts manufacturing

Spending by American consumers slowed in August even though disposable incomes rose, according to the Commerce Department data. — AFP pic
Spending by American consumers slowed in August even though disposable incomes rose, according to the Commerce Department data. — AFP pic

WASHINGTON, Sept 27 — A key component of the Federal Reserve’s preferred inflation measure of ticked higher in August for the third month in a row, according to government data released today.

The upward price pressures are likely to heighten disagreements among US policymakers about the need to cut interest rates again this year, as markets are expecting.

Meanwhile, spending by American consumers slowed in August — a month when the US-China trade war deteriorated and stock markets wobbled — even though disposable incomes rose, according to the Commerce Department data.

Tumbling energy prices kept a lid on overall price gains for last month, as the Personal Consumption Expenditures price index was unchanged from July, falling short of economists’ expectations.

Compared to August 2018, the PCE price index, which tracks costs for goods and services purchased by individuals, rose 1.4 per cent, four months in a row at the same pace and well below the central bank’s two per cent target.

When volatile food and fuel prices are stripped out, the “core” price index for August gained a trivial 0.1 per cent over July, but rose by a hotter 1.8 per cent from a year ago.

That closely-watched measure was fueled by steady gains in the costs of US services which pushed it to its highest level since January.

Some Fed policymakers worry that cutting rates will fuel inflation, while other argue that price pressures have been largely absent which gives the central bank room to cut lending rates to support the economy.

Incomes up but spending sluggish

Meanwhile, disposable incomes adjusted for inflation rose 0.4 per cent for the month, the biggest increase since February, suggesting consumers have cash available.

But spending slowed to crawl, hitting its slowest pace since February, a sign that President Donald Trump’s persistent trade conflicts could be dissuading consumers from spending too freely.

As a result, savings rose to US$1.36 trillion, the highest level since March.

Still, higher incomes could support consumer spending in the coming months, bolstering GDP growth in the remaining months of 2019.

Meanwhile, August was a better-than-expected month for US manufacturing, with a second straight sales gain for military aircraft and equipment.

Together with a boost in sales of primary metals, overall new orders for big-ticket US-made items rose 0.2 per cent, well above the one per cent drop economists had expected.

But the data show other industries had a painful month, with notable declines for civilian aircraft, autos, communications equipment, electronics and appliances.

A measure seen as a proxy for business investment, and a sign of future business activity, also fell in August after recording a flat July.

As with consumers, the trade conflicts have spurred uncertainty and confidence, which has caused companies to hold off on investment. — AFP

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