Inflation. It’s been a big topic of discussion this year because it’s been rising at a pace that we haven’t seen in this country in 30 years, as shown in our chart above. This chart shows the U.S. Personal Consumption Expenditures (PCE) Index. It measures household consumer spending. It’s similar to the well-known Consumer Price Index (CPI), but it is arguably more important because it’s the preferred inflation measure used by the U.S. Federal Reserve when making monetary policy decisions.

That’s why the 4.6% annual change in the PCE Index in August—the highest since 1991—is such a big deal. The Fed has said previously that inflation would be “transitory” coming out of the pandemic. But the longer inflation stays persistently high like this, the more likely the Fed will be forced to react and potentially raise interest rates to hold off inflation.

 

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