The White House is fending off another hotter-than-expected inflation report by pointing to increased consumer confidence and a resilient labor market.
On Friday, the personal consumption expenditures price index, the Federal Reserve’s preferred inflation gauge, showed price increases outpacing projections in August. Core inflation, which factors out food and energy costs, increased to 4.9% compared to August 2021. Headline PCE decreased from 6.4% to 6.2% but still registered above expectations and more than three times higher than the Fed’s target rate of 2%.
CORE INFLATION RISES IN AUGUST, ACCORDING TO FED’S PREFERRED INDEX
“The president’s top priority is tackling inflation and bringing prices down. We have more work to do to bring prices down. But we’ve seen some important progress for the American people,” a White House official told the Washington Examiner. “Real disposable income and real consumer spending both increased, in part thanks to the strength of our job market.”
“The economic legislation the president signed — from the Infrastructure Law to the CHIPS Act to the Inflation Reduction Act — are encouraging investment right here in the United States that will make our economy stronger and more resilient for years to come,” the official continued. “There is undoubtedly more work to do, but we welcome the news that U.S. consumer confidence rose for a second month in September to the highest since April, indicating that a strong job market and lower gas prices are contributing to more optimistic views of the economy.”
Friday’s PCE report did show unadjusted personal income rise 0.3% for the second straight month, while aggregate nominal compensation, which accounts for both the total number of workers and average pay, also rose 0.3% in August. Overall, worker compensation is up a “strong” 8% compared to last year, according to the White House.
The Council of Economic Advisers claimed that the August PCE report illustrated a “solid pace” commensurate with pre-pandemic levels. Overall, consumer spending rose 0.4% compared to last year and a blistering 0.8% compared to July, but it remains unclear how long people can maintain those spending levels.
As CEA repeatedly emphasizes, monthly data can be volatile. Thus, it is important to never focus too much on one report. /end
— Council of Economic Advisers (@WhiteHouseCEA) September 30, 2022
Consumer debt for the bottom 90% of U.S. households is currently at an all-time high, jumping more than $300 billion in just one year, while Friday’s report showed an extremely low 3.5% personal saving rate.
Meanwhile, the Fed is expected to continue its aggressive rate hikes, possibly reversing some of the Biden administration’s labor market gains, in an effort to lower prices.
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“We have always understood that restoring price stability while achieving a relatively modest increase in unemployment and a soft landing would be very challenging,” Fed Chairman Jerome Powell said in remarks delivered last week.
