Key inflation gauge watched by the Federal Reserve hits another 30-year high

Inflation ran at a fresh 30-year high in August as supply chain disruptions and extraordinarily high demand fueled ongoing price pressures, the Commerce Department reported Friday.

The core personal consumption expenditures price index, which excludes food and energy costs and is the Federal Reserve’s preferred measure of inflation, increased 0.3% for the month and was up 3.6% from a year ago. The monthly gain was slightly higher than the 0.2% Dow Jones estimate and the annual forecast of 3.5%.

That’s the highest since May 1991 and reflective of inflationary pressures that Fed Chairman Jerome Powell said earlier this week he finds “frustrating.”

On a headline basis, PCE prices rose 0.4% for the month and 4.3% year over year, the highest since January 1991. That reflected a 24.9% increase in energy prices and a 2.8% rise in food.

Goods prices rose by 5.5% while services increased by 3.6%.

The rise in inflation came as personal income increased 0.2% for the month, in line with estimates but indicative that real income is falling as inflation rises. Spending accelerated 0.8%, slightly above the 0.7% forecast.

Personal savings totaled $1.71 trillion, running at a 9.4% rate and a decrease from 10.1% in July. The savings rate peaked at 33.8% in April 2020 in the early days of the pandemic as the government rushed out payments to individuals and businesses were shut down to combat the Covid spread.

A separate report Friday morning showed that manufacturing continued to expand.

The ISM Manufacturing index for September registered a 61.1 reading, representing the percentage of companies seeing expansion. Anything above 50 represents growth; the Dow Jones estimate was 59.5.

The survey also showed prices rising, with 81.2% of respondents reporting increases against 79.4% in August.

Order backlogs decreased to 64.8, a drop of 3.4 points from a month ago, but companies overall were still reporting delays.

“Supply chain concerns are growing beyond electronics and chips into most other commodities. Lead times are extending, shipping lanes are slowing, and we will not see an end to this in 2021,” said one respondent in the electrical equipment, appliances and components industry.

Also, consumer sentiment improved, according to the University of Michigan’s index, which rose to 72.8 in September compared to 70.8 in August and a 71 estimate.