U.S. core inflation held at 3.0% in August while consumer spending accelerated sharply, leaving a mixed picture of softer underlying price growth but strong household demand.
The core personal consumption expenditures price index, which excludes food and energy, rose 0.2% from July and 3.0% from a year earlier, according to the Bureau of Economic Analysis’ August Personal Income and Outlays release. The headline PCE price index increased 0.3% for the month and 3.4% over 12 months. The data were released September 30 at 8:30 a.m. EDT.
The 3.0% annual core rate remains above the Federal Open Market Committee’s longer-run 2% inflation objective, which is defined using the annual change in the PCE price index. The distinction matters after the Federal Reserve’s September rate increase and as officials assess whether inflation is moving sustainably toward the Fed’s 2% inflation target. The August report by itself does not establish what the Fed will do next.
Spending accelerated even after adjusting for inflation
The larger surprise inside the report was household spending. Current-dollar personal consumption expenditures increased $190.8 billion, or 0.9%, in August after a revised 0.1% increase in July. Real PCE, which removes the effect of price changes, rose 0.6%, compared with 0.1% in July, according to BEA’s real PCE data and related tables.
Goods accounted for $114.1 billion of the $190.8 billion increase, while services contributed $76.7 billion. That means goods represented about 59.8% of the monthly dollar increase in PCE, an Investozora calculation using BEA’s published figures.
The detailed BEA release shows that the largest individual increases included other nondurable goods at about $24.7 billion, gasoline and other energy goods at $20.9 billion, food and beverages at $20.6 billion, food services and accommodations at $20.1 billion, and housing and utilities at $18.7 billion. Recreation services moved in the opposite direction, falling about $10.3 billion. These component figures are reported at seasonally adjusted annual rates.
Income did not accelerate at the same pace. Personal income rose $66.6 billion, or 0.2%, while disposable personal income increased $68.6 billion, or 0.3%. After adjusting for prices, real disposable personal income was unchanged in August.
BEA said the increase in personal income primarily reflected higher compensation and government social benefits, with private wages and salaries leading compensation growth.
The July inflation comparison was rewritten by BEA’s annual update
The most important qualification in the August report is the revision history. When BEA originally published its July Personal Income and Outlays report on August 26, it estimated core PCE inflation at 3.3% year over year and headline PCE inflation at 3.7%. July core prices and headline prices were each initially reported as rising 0.2% month over month.
The September 30 release incorporated BEA’s 2026 annual update and now shows July monthly headline and core inflation at 0.1% each. On the revised series, August’s 3.0% annual core rate is therefore unchanged from July rather than a 0.3-percentage-point monthly decline in the 12-month rate. The old 3.3% July figure and the revised 3.0% July figure come from different data vintages and should not be treated as a normal month-to-month movement.
BEA said the annual update revised personal income and outlays estimates beginning in January 2021. Its 2026 National Economic Accounts annual-update documentation shows that updated source data, seasonal factors and methodology changes were incorporated, including revised approaches for portfolio-management services, legal services, and computer software and accessories. BEA said the revised price indexes generally preserve the previous pattern while reducing volatility and improving alignment between spending categories and their deflators.
That revision is central to interpreting August: the new release shows softer core inflation than the previously published July vintage suggested, but part of that difference reflects a rewritten historical series rather than price behavior occurring solely during August.
What comes next
The next test arrives with BEA’s September Personal Income and Outlays report on October 29 at 8:30 a.m. EDT, according to the agency’s 2026 release schedule. That report will show whether August’s combination of 0.2% monthly core inflation and 0.6% real consumption growth persisted or was a one-month divergence.
