Fed’s preferred inflation measure remains stubbornly high at 6.2%

A key measure of inflation in the US has remained stubbornly high over the past month, a sign that higher prices are turning solid despite the Federal Reserve’s efforts to combat them by cooling the economy.

The personal consumer spending (PCE) price index rose 6.2 percent in August from a year ago, down from recent highs but still persistently high, the Commerce Department said Friday.

The PCE measure, preferred by the Fed for its flexible 2 percent target, is an alternative measure of the better-known consumer price index, which stood at 8.3 percent in August last year.

Meanwhile this week a separate survey from LendingClub showed the harsh impact inflation has on families, with 60 percent of Americans saying they live paycheck to paycheck.

The proportion of Americans living paycheck to paycheck is 60%. The monthly survey results can be seen above as of March 2020

A shopper walks through a supermarket in Washington, DC in a file photo. Inflation continues to hit Americans’ wallets and remains stubbornly high

Friday’s report also showed that core PCE, which excludes food and energy prices, rose more than expected, to 4.9 percent from 4.7 percent in July, a sign that inflation is more anchored in the economy. touches.

Because food and energy prices fluctuate largely based on supply factors beyond the Fed’s control, the key figure should be the one that falls as the central bank raises interest rates.

Instead, core PCE rose 0.6 percent from the month in August after flat in July, a sign that rising rates are not having the desired effect on consumer prices.

The PCE deviates from the consumer price index for several reasons, including the fact that the CPI gives more weight to rising housing costs and rents.

The Fed is trying to tame inflation by slowing the economy through higher interest rates, raising the cost of loans for households and businesses.

But as interest rates rise, the risk increases that the economy will plunge into a sharp downturn with massive layoffs and rising unemployment.

Last week, after the Fed raised interest rates to the highest levels since the 2008 financial crisis, Chairman Jerome Powell admitted achieving a so-called soft landing will be “very challenging.”

The PCE diverges from the consumer price index (above) for several reasons, including the fact that the CPI gives more weight to rising housing costs and rents

Fed Chair Jerome Powell admitted last week that achieving a so-called soft landing will be ‘very challenging’

Meanwhile, inflation continues to hit families hard, even those with high incomes, the LendingClub survey found.

Of those earning more than six figures, 45 percent say they live paycheck to paycheck, a jump from 38 percent a year ago.

“More consumers living from paycheck to paycheck indicates that many continue to lose their financial stability,” said Anuj Nayar, LendingClub’s Financial Health Officer.

“Many have moved into what may now be a stable lifestyle: living paycheck to paycheck, but still manage to pay your monthly bills,” he added. “There’s nothing left in the end.”

The survey found that 60 percent of Americans have changed their financial habits as a result of inflation, including by tapping credit lines.

As a result, household debt is rising. According to the Fed date, families spent an average of 9.6 percent of their disposable income on debt payments in the past quarter, compared to 9.1 percent a year ago.

Still, consumer spending remains robust at a bright spot for the US economy.

Americans increased their spending 0.4 percent in August, after falling 0.2 percent in July, according to the new report from the Commerce Department.

While much of that increase was due to higher prices, inflation alone was not responsible for all of the increased spending.

Americans are also saving less to keep up with higher prices. The U.S. savings rate was just 3.5 percent in August, well below its pre-pandemic level of about 8 percent, Friday’s report said.

There have been other signs of consumer weakness recently, with used car salesman Carmax reporting sharply lower sales in the three months ended August.

The company attributed the drop to “affordability problems” for consumers amid high inflation and rising interest rates.