Forecasts for August PCE Report Shows Some Cooling, but Tariff Impacts Persist

Key Takeaways

• Economists expect core PCE inflation for August to be slower compared with July, but the tariff impact is not yet over.
• New trade policies are expected to raise the annual PCE inflation rate to 3% or higher in the coming months.
• Despite inflation holding above the Fed’s target, markets expect two more interest rate cuts in 2025.

Forecasts for the August Personal Consumption Expenditures Price Index report show that excluding food and energy prices, inflation likely moderated a little. But that doesn’t mean the inflationary impact of tariffs is in the rearview mirror.

Overall, economists expect that consumer prices rose 2.7% on an annual basis and 0.3% on a monthly basis in August, according to FactSet’s consensus estimates. They expect that the core measure of PCE inflation, which excludes volatile food and energy prices, was 3.00% on an annual basis and 0.21% on a monthly basis.

Inflation is “moving in the right direction, but still elevated” says Josh Hirt, senior economist at Vanguard. He’s expecting a 0.20% bump in core inflation for August, down from 0.27% growth in July—a “relatively mild” number, thanks in part to a smaller contribution from goods prices. “We’re likely to see a relatively subdued inflation report, but we should not take from that that the tariff pressures are subsiding, or that that inflation should be put on the back burner overall,” he says.

PCE vs. CPI Goods Inflation

While core data in line with these forecasts would represent a milder picture compared with last month, Hirt cautions that a small slowdown in goods inflation doesn’t mean the impact of President Trump’s tariffs is already fading.

Economists from Goldman Sachs, who are also forecasting core PCE price growth of 0.21% for August, say tariffs account for about 0.10 percentage points of their forecast for the month.

Hirt points to August’s Consumer Price Index report, another measure of inflation calculated differently than the PCE, which showed an extremely strong contribution to inflation from the goods sector, which saw prices rise at a rate of 0.3% for the month. That is “much higher than normal,” according to Morningstar chief US economist Preston Caldwell, since goods prices typically decelerate or remain flat on a monthly basis.

The discrepancy between the two measures of inflation comes from differences in how the two indexes are calculated. CPI data is more focused on prices consumers pay, while the PCE includes a wider set of data from the government and producers.

“There’s been this wedge between CPI goods and PCE goods [data] that’s really developed over the course of this year,” Hirt explains. “Through most of this year, we actually saw that PCE goods inflation was quite strong,” reflecting some pass-through of higher prices from businesses to consumers. Now, CPI data is catching up.

August PCE Report Highlights

• PCE report release date and time: Friday, Sept. 26 at 8:30 a.m. EDT
• The PCE Price Index is forecast to have risen by 0.3% in August, up from 0.2% in July.
• Core PCE is expected to have risen 0.21% in August, up from 0.27% in July.
• Year over year, the PCE Price Index is forecast to have risen 2.7% in August, up from 2.6% in July.
• Core PCE year over year is expected to have risen 3.0% in August, up from 2.9% in July.

On the other side of the coin are services prices, which Hirt expects to rise at a 0.3% rate for August. For now, he says he’s not seeing worrisome signs that services inflation is bleeding over into goods prices.

Tariffs to Put Upward Pressure on Inflation in the Long Term

While Friday’s release may paint a picture of softer goods inflation, Hirt believes one month of data isn’t indicative of the trend. Over the full year, “the rise in goods prices has been pronounced,” he says.

Overall, economists expect tariffs to keep inflation well above the Federal Reserve’s 2% target in the coming months, with many analysts forecasting a peak in price pressures that will come in 2026.

“Tariffs are breathing new life into inflation, starting with goods prices, but likely flowing into the rest of the economy with a lag,” writes Morningstar chief US economist Preston Caldwell in his outlook for the third quarter. “Businesses are reluctant to raise prices, but they will eventually be forced to do so.” Caldwell forecasts 2.7% PCE inflation for this year and 3.0% PCE inflation for 2026.

How Much Will the Fed Cut Rates?

Sticky inflation complicates the calculus for the Fed, which earlier this month delivered its first interest rate cut in a year. Prices remain elevated, but a slew of data over the summer showed that the labor market has cooled significantly, which the Fed said provided reason enough to cut interest rates. Vanguard’s Hirt says the September meeting was notable because of the “elements of uncertainty” it introduced.

With the two sides of its mandate in conflict, Fed Chair Jerome Powell said in prepared remarks this week that “there is no risk-free path” for monetary policy. That led to wider-than-usual differences in the expectations of Fed committee members concerning rates going forward.

Bond futures markets see a roughly 94% chance of another rate cut in October, and a 75% chance of two more cuts by December, according to data from the CME FedWatch Tool.

Hirt expects only one more cut, which he says is more likely to come in October rather than December. He thinks the inflationary picture is “more worrisome” than the market is treating it, given how long price pressures have been elevated and the lingering uncertainty around how long new pressures from tariffs will last. “The Fed needs to continue to add that element of caution around the inflation mandate,” he says. Ultimately, he expects the Fed to deliver fewer cuts than the market is expecting this cycle.