Editor’s note: This article was updated to add more details and context.

Inflation as measured by the Federal Reserve’s preferred came in cooler than expected last month, according to data released Wednesday by the Bureau of Economic Analysis.

The personal consumption expenditures (PCE) price index rose 0.3% month-over-month, below economists’ expectations of 0.4%.

On an annual basis, headline PCE inflation held at 3.4%, matching July’s revised reading and below the 3.7% consensus.

Core PCE, which excludes volatile food and energy prices, rose 0.2% month-over-month, compared with a 0.3% forecast. The annual core rate slowed to 3.0% from 3.3%, below expectations of 3.3%.

At 3.0%, core inflation remains a full percentage point above the Fed’s 2% target.

The release included the BEA’s annual revisions, which also lowered past inflation. Core PCE prices rose at an annualized 3.3% in the second quarter, down from 3.6% previously estimated.

Second-quarter GDP growth was revised up, to 2.2% from 1.5%.

Traders see a 52.9% chance that the Fed will leave rates unchanged at 3.75%-4.00% on Oct. 28, according to the CME FedWatch tool. The probability of a quarter-point hike to 4.00%-4.25% stands at 47.1%.

Energy Drove the Monthly Gain in August

Energy was the biggest source of price pressure in August.

Prices for energy goods and services rose 2.3% on the month, after falling 1.4% in July. Gasoline and other energy goods led the increase, up 4.4%.

Goods prices overall rose 0.3%, reversing a 0.1% decline in July.

Food bought at grocery stores was flat.

Services prices rose 0.3%, up from 0.1% in July.

Transportation services rose 1.4%, the largest monthly gain in that category this year. Prices at restaurants and hotels rose 0.5%, after a 0.1% decline the previous month.

Some parts of the basket cooled.

Housing costs rose 0.2%, compared with 0.3% in July. Durable goods prices rose 0.1%, down from 0.4%.

Markets Welcome the Softer Print

Stocks and bonds rallied after the release.

As of 8:46 a.m. ET, S&P 500 futures were up 0.3% at 7,708.

Nasdaq 100 futures rose 0.5%, while Dow futures gained 0.3%.

The small-cap Russell 2000 outperformed, rising 0.6%.

Treasury yields fell. The two-year yield, the most sensitive to Fed policy expectations, dropped about 4 basis points to 4.84%.

The U.S. Dollar Index slipped 0.2% to 100.70. Gold – tracked by the SPDR Gold Shares (NYSE:GLD) – rose 0.6% to $4,215 an ounce, and Bitcoin (CRYPTO: BTC) gained 1.35% to about $84,927.

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