Updated Published Friday, September 30, 2022 at: 8:33 PM EDT

The good news is that the Federal Reserve’s preferred measure of inflation may be bottoming, but the bad news is the American consumer’s purchasing power declined by -4.8% in the 12 months ended August 31. 

The mixed results are captured in this chart showing the Personal Consumption Expenditure Deflator (PCED), the inflation index the Federal Reserve refers to in its policy pronouncements.

The PCED declined three-tenths of 1% in August, which is good news. Inflation peaked at a 7% annual rate in June 2022 and declined in July, and Friday’s release showed the decline inflation was extended in August. That’s good news.

However, Core PCED, which excludes energy and food prices because they are highly volatile, ticked two-tenths of 1% higher in August. Though it was not a surprise, the Core PCE price index is closely watched by the Federal Reserve as it conducts monetary policy. Its rise in August means the Fed’s interest rate increase cycle is not over.  The Fed hiked rates five times this year, including three increases of three-quarters of 1% and its aggressive effort to reduce inflation to 2% is widely expected to result in a recession in the months ahead.

The Standard & Poor’s 500 stock index closed this Friday at 3,585.62. The index lost -1.51% from Thursday and -2.91% from last Friday. The index is up +60.26% from the March 23, 2020 bear market low and down -25.25% from the January 3rd all-time high.

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