U.S. Core PCE Inflation Stays at 2.9% as Consumer Spending Accelerates in August
Personal Income and Spending Gain Momentum
The U.S. economy showed renewed strength in August 2025, with both income and spending on the rise. According to the Bureau of Economic Analysis (BEA), personal income grew by $95.7 billion (0.4%), while disposable personal income (DPI)—income after taxes—rose by $86.1 billion (0.4%).
Consumers once again drove growth, as personal consumption expenditures (PCE) increased by $129.2 billion (0.6%), led by gains in both goods and services. Spending on services accounted for $77.2 billion, while spending on goods added $52.0 billion.
Overall personal outlays, which include consumer spending plus interest payments and transfers, climbed by $132.9 billion. Meanwhile, the personal saving rate slipped to 4.6%, showing that households are tapping more of their disposable income to maintain lifestyle and consumption.
Core Inflation Stays Sticky at 2.9%
The PCE price index, the Federal Reserve’s preferred inflation gauge, rose 0.3% month-over-month in August. Stripping out volatile food and energy costs, the Core PCE index increased 0.2% from July.
On a yearly basis, inflation stayed elevated:
Headline PCE: +2.7% year-over-year
Core PCE: +2.9% year-over-year
While the numbers are well below the peak inflation levels of past years, they remain above the Fed’s 2% target, keeping pressure on policymakers to sustain a cautious stance.
What’s Driving the Numbers?
Income Growth: Higher wages and transfer receipts boosted overall income.
Resilient Demand: Consumers increased spending across goods and services, signaling confidence despite higher borrowing costs.
Services Strength: The bulk of inflationary pressure is linked to services, which tend to be harder to cool down.
Savings Decline: With the saving rate at just 4.6%, Americans are dipping into reserves, fueling growth but raising sustainability questions.
Why Traders Care
For forex and financial markets, the August PCE report matters because it confirms that inflation is sticky and consumer demand is resilient.
U.S. Dollar (USD): Strong spending and steady inflation could support the greenback, as traders anticipate a “higher-for-longer” Federal Reserve policy.
Bonds: Treasury yields may push higher as markets brace for fewer or delayed rate cuts.
Equities: While consumer-driven growth helps corporate earnings, elevated inflation could limit upside for stocks.
This mix of robust demand and stubborn inflation creates both opportunities and risks for traders.
Looking Ahead
The persistence of Core PCE at 2.9% highlights the challenge facing the Fed. Markets will closely watch upcoming inflation and labor market reports to gauge whether the central bank can balance inflation control without stalling growth.
The key question remains: Will the Fed hold rates steady, or will sticky inflation push policymakers to extend their hawkish stance into 2026?
Final Takeaway
The August PCE report makes one thing clear: the U.S. economy is strong, but inflation hasn’t fully cooled. For traders, this means staying alert—because every inflation print shifts expectations for the U.S. dollar, interest rates, and global markets.
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