An annual update to federal data shows that prices haven’t been rising as fast as previously thought; however, inflation remained stubbornly elevated in August as a war-driven energy shock continued to ripple through the US economy and Americans’ pocketbooks.

The Personal Consumption Expenditures price index – the Federal Reserve’s preferred inflation gauge – rose 0.3% from July, bringing the annual rate to 3.4%, unchanged from the month before, which was revised down from 3.7%, according to new data from the Commerce Department.

The August PCE report was expected to show some cooling in inflation because of some methodological changes the Commerce Department made to several key categories.

Inflation picked up on a monthly basis as fuel and other energy prices shot higher as a result of the war in Iran.

Excluding volatile food and energy prices, the closely watched core PCE price index rose 0.2% from July, staying at the downwardly revised annual rate of 3% for a third-straight month.

Wednesday’s report also showed that a crucial economic engine continued to run smoothly: Inflation-adjusted spending was up 0.6% in August, the strongest monthly increase in more than a year.

While consumer spending has remained resilient, Americans have been drawing down their reserves in the process. The saving rate (savings as a percentage of after-tax income) dropped to 4.1% in August, a nearly four-year low.

“Households pinched by higher prices have been either reducing their monthly savings rate or relying more on credit,” Kathy Bostjancic, Nationwide’s chief economist, wrote Wednesday in a note.

The strength of the US labor market has helped to fuel spending, she noted.

“Employment growth has accelerated and broadened out, keeping the unemployment rate low,” she said. “Having a job enables confidence to keep spending despite inflation headwinds.”

Job growth has picked up this year following a historically weak showing in 2025. The latest monthly jobs report is due out Friday, and economists are expecting the US economy added 94,000 jobs in September, with a jobless rate staying low at 4.1%.

Every year, the Bureau of Economic Analysis updates its massive repository of national, industry and regional data to incorporate newly available statistics and more accurately capture changes in prices.

This year, the BEA incorporated different source data for three categories – portfolio management and investment advice services, legal services, and computer software and accessories – to more accurately reflect pricing shifts. For example, as previously measured, portfolio management tended to rise and fall with stock prices.

Economists estimated that the changes could lower the annual PCE inflation rate by a couple of percentage points. The latest report showed that July’s annual rate previously reported at 3.7% was revised down to 3.4%. The core index showed a similar reduction from 3.3% to 3%.

The revisions ease the pressure on the Fed, said Oliver Allen, senior US economist at Pantheon Macroeconomics. Fed officials earlier this month raised their benchmark interest rate for the first time in three years. Allen noted that the three-month average of annualized changes in the core PCE price index stood at 2% in August, versus a 3.1% rate implied pre-revision.

“I think the inflation momentum doesn’t look quite so scary after this report, perhaps,” he told CNN in an interview.

The PCE price index is part of the Commerce Department’s monthly Personal Income and Outlays report, which includes comprehensive data on how Americans earn, spend and save.

Personal income growth and disposable (after-tax) income growth both slowed a tenth of a percentage point in August to 0.2% and 0.3%, respectively. When adjusting for inflation, disposable personal income was flat.

The trajectory of income growth indicates that the current pace of consumer spending is likely to slow but still remain fairly solid, said Gus Faucher, senior vice president and chief economist at The PNC Financial Services Group.

“For the last couple of years, we’ve seen spending grow faster than incomes – that’s unsustainable over the longer run,” he told CNN. “A lot of that has been coming from high-income households, and that’s supported by the strong stock market. We can’t count on that support indefinitely.”