The Federal Reserve’s preferred measure of inflation showed signs of moderation in August, indicating a potential pause in interest rate increases until at least December. Data released Wednesday by the Bureau of Economic Analysis (BEA) revealed that the core Personal Consumption Expenditures (PCE) price index, which excludes food and energy costs, increased by 0.2% for the month, corresponding to a 3% annualized rate. This growth was lower than the anticipated 0.3% monthly rise and a 3.3% yearly pace.

Overall PCE prices, which include food and energy, advanced 0.3% in August, translating to a 3.4% annual rate. This figure also fell short of expectations, which forecasted a 3.7% increase over the year.

Economists had broadly predicted a slowdown in the monthly inflation figures following adjustments in BEA’s methodology. The agency updated how it measures prices for legal services, software and computer accessories, and portfolio management, changes that complicated direct comparisons to prior data. Analysts noted it remains uncertain how much of the observed cooling is due to the revised data collection methods versus an actual easing in inflationary pressures.

Chris Zaccarelli, chief investment officer at Northlight Asset Management, commented on the mixed signals in the data, saying the Federal Reserve’s decision to raise rates in September appears justified but indicated that future rate hikes could be less frequent than previously feared. “If inflation data continues to improve, the Fed might skip a meeting or raise rates less than the three consecutive times that many market observers had been anticipating,” he said.

The August inflation readings align with broader efforts by the Fed to balance curbing price increases while avoiding undue strain on economic growth. After a series of rate hikes earlier in the year, policymakers are now monitoring inflation trends closely to determine the appropriate timing and pace of further tightening.