US consumer spending increased at its fastest pace in more than a year in August, indicating that household demand remained resilient despite elevated inflation and higher costs across the economy.

Inflation adjusted personal consumption expenditures rose 0.6 percent in August from the previous month, according to data from the US Bureau of Economic Analysis. The increase was the strongest monthly gain since March 2025, supported by higher spending on both essential and discretionary categories.

Households increased expenditure on big ticket items including motor vehicles and furnishings, while also raising spending on clothing, food services and accommodation. A stable labour market and gains in equity markets have provided support to household finances, helping consumers maintain spending despite higher gasoline prices and persistent inflation.

The latest data also showed continued price pressures. The Personal Consumption Expenditures price index, the Federal Reserve preferred inflation measure, increased 0.3 percent month on month in August. Core PCE inflation, which excludes food and energy, rose 0.2 percent during the month.

On an annual basis, overall PCE inflation stood at 3.4 percent in August, remaining significantly above the Federal Reserve 2 percent target. Core inflation was 3 percent year on year and remained at that level for a third consecutive month. Prices increased across both goods and services, with higher costs recorded for gasoline, transportation services, food services and accommodation.

A closely watched measure of services inflation excluding energy and housing increased 0.4 percent from the previous month, marking its fastest increase since May. The data therefore points to continued underlying price pressures even as consumer demand remains firm.

The annual revisions released alongside the August data also showed a stronger recent growth profile for the US economy. Second quarter GDP growth was revised to an annualized 2.2 percent from the previously reported 1.5 percent. Consumer spending also recorded its strongest pace since the end of 2024, while first quarter economic growth was revised higher.

However, household purchasing power showed signs of pressure. Inflation adjusted disposable personal income was unchanged in August from the previous month, marking its weakest performance since April. The personal saving rate also declined to 4.1 percent from the previous month, its lowest level since 2022.

The combination of resilient consumption and persistent inflation remains important for Federal Reserve policy. The central bank is closely monitoring spending, inflation and employment data as it assesses the timing of its next interest rate decision. The upcoming September employment report and additional inflation and consumer data are expected to provide further insight ahead of the October 28 policy meeting.

Financial markets adjusted expectations following the data, with traders reducing bets on an October rate increase after the core inflation reading came in better than expected. However, expectations for another rate increase before the end of the year remained in place. S&P 500 futures moved higher while US Treasury yields declined following the release.

The key weak links remain persistent inflation, stagnant real disposable income and declining household savings. While strong consumer spending continues to support economic activity, a prolonged period of elevated prices and reduced savings could eventually place greater pressure on household purchasing power and future consumption.