The Fed’s favorite gauge showed core inflation at 3.0% in August, much lighter than expected

Consumer prices showed a smaller-than-expected increase in August from a year ago, according to the Federal Reserve’s main inflation gauge, the Commerce Department reported Wednesday.

The personal consumption expenditures price index rose a seasonally adjusted 0.3% for the month, bringing the year-over-year gain to 3.4%. Economists surveyed by Dow Jones expected increases of 0.3% and 3.7% respectively.

Excluding food and energy, the PCE recorded an increase of 0.2% which places the annual base level at 3%. The respective forecasts were 0.3% and 3.3%.

Although the Fed officially tracks the overall PCE figure, officials generally view the core as a better indicator of long-term trends.

Although the annual increases were lower than expected, they came as the Bureau of Economic Analysis adjusted how it calculates several components of the index. The impact of the revisions on the final figures was not immediately clear.

The report also shows that personal income increased by 0.2% while expenses increased by 0.9%, compared to the consensus of 0.4% and 0.8% respectively.

Both levels remain significantly above the central bank’s 2% target, raising the possibility that the Fed will follow up its September interest rate hike with another increase at one of its final meetings this year, in October or December.

Energy costs were the main contributor to August’s price rise, although several other sectors also posted gains. Gasoline jumped 4.4% and transportation services accelerated 1.4%. Energy goods and services increased by 2.3%.

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