Inflation outpaced wage growth in August 

• Key insight: Americans earned more and spent even more in August, pushing the savings rate down.
• Supporting data: Income rose, spending jumped and the PCE price index increased month-over-month.
• Forward look: Rising wages and steady inflation may sustain spending, while the Fed’s 2% inflation target likely remains out of reach for some time.

In August, Americans earned a bit more and spent even more, with rising wages and benefits driving higher household spending as inflation stayed steady, according to the latest Personal Consumption Expenditures Price Index report released Friday by the Bureau of Economic Analysis . 
Personal income rose $95.7 billion, a 0.4% increase, in August. Disposable personal income climbed $86.1 billion, or 0.4%, while personal consumption expenditures jumped $129.2 billion, a 0.6% increase.

Households spent more on both services, which jumped by $77.2 billion, and goods, which rose by $52.0 billion. The PCE price index increased 0.3% in July and 2.7% from a year earlier. Excluding food and energy, prices rose 0.2% on the month and 2.9% year over year.

Spending climbed $132.9 billion, pushing the personal saving rate — or savings as a percentage of disposable income — down to 4.6%. Gains in wages, salaries, and transfer receipts, including higher Medicare benefits and a settlement from a domestic health insurer, largely drove the income increase.

The results track with other recent inflation indicators. The August Consumer Price Index report released earlier in the month by the Bureau of Labor Statistics showed inflation rising by 0.4% in August, doubling the 0.2% pace of increase in July. On an annual basis, inflation climbed 2.9%, compared with the 2.7% year-over-year rate of price growth reported in July. Core CPI, excluding food and energy, rose 0.3% last month and 3.1% from a year prior.

The August pickup comes after months of relatively muted price growth, as the effects of Trump-era tariffs continue to ripple through the economy and the Federal Reserve determines whether and how low to cut interest rates. In July, Fed officials signaled that absent tariff uncertainty, they likely would have already cut rates this year. Labor market weakness in recent months has heightened the Fed’s focus on its employment mandate.

At its September meeting, the Fed cut rates by a quarter point with only one dissent from Fed Gov. Stephan Miran, who preferred a 50 basis point cut. The near-consensus eased fears of a strong ideological split among central bankers. 

Fed Chair Jerome Powell has since said slowing job growth drove the latest rate cut but has not given any indication on future moves, stressing the Fed will respond to incoming data while balancing risks of inflation and a weaker labor market.

Since earlier this year, business economists have expressed doubt about the central bank’s ability to steer price growth back to target any time soon.

The March 2025 Economic Policy Survey from the National Association for Business Economics, which polled 151 members on U.S. policy and outlook, found respondents split on fiscal direction but increasingly concerned about inflation. Nearly half did not expect the Fed to reach its 2% inflation target until 2027 or later.

For years, the Fed’s research has shown that inflation and high interest rates rank at the top of concerns for financial professionals — including broker-dealers, investment fund managers, research and advisory specialists, and academics surveyed in its semiannual reports. Seventy-two percent cited them as the primary risk in April 2024, the same share as in October 2023, when persistent price pressures and elevated rates first fueled stability worries heading into the fall.