The Fed's preferred inflation measure was lower than expected in August. Is that a good thing?

Topline inflation was up three-tenths of a percent in August month-over-month, according to the personal consuption expenditures price index, which is the Federal Reserve’s preferred measure of inflation. Overall price growth held steady at 3.4% year-over-year. It was a surprise for economists, who expected the numbers to be higher.

This inflation news kind of feels like when you’re on a flight that lands early, but you sit on the runway for forever because there’s no gate. So your arrival time ends up being the same anyway. Like … yay?

“You can look at these numbers from a lot of different angles and sometimes they look prettier than they do from other angles,” said Stephanie Kelton, an economist at Stony Brook University. But in the end, she said, it’s all a wash: “Either way you’ve got a three on the other side of the decimal point.”

Gary Schlossberg, global strategist at Wells Fargo Investment Institute, said that 3.4% figure was lower than it would have been otherwise. In August, the Bureau of Labor Statistics changed the way some categories — like computer software and investment services — are calculated.

“And that was going to have the effect of lowering inflation by a couple of tenths of a percent,” he said.

By the previous standards, inflation would have measured higher at around 3.6% or 3.7%.

Omair Sharif, president of Inflation Insights, said it’s not the big number that worries him most. It’s the little ones that make up PCE, like healthcare and housing.

“So more than half the basket is rising at an inflation rate of 3% or higher,” he said.

And those aren’t likely to fall even if the war with Iran ends tomorrow, he added. “We’ve had this set of rolling shocks for six years that have boosted inflation to well above target. There’s nothing to say there won’t be another shock coming in the next six months.”

All three economists, and the markets, are betting the Fed will pause rates this month and hike rates in December.

Sharif said he thinks they might even hike one more time in Q1 of 2027.

Meanwhile, inflation tends to go up at the beginning of the year because companies usually raise prices after the holidays.