US inflation cooled more than expected in August, with the Federal Reserve’s preferred price gauge coming in below forecasts and giving policymakers breathing room.

The personal consumption expenditures price index rose 3.4 per cent from a year earlier, below the 3.7 per cent estimate, while core PCE — which strips out food and energy — rose 3.0 per cent against a 3.3 per cent forecast. On a monthly basis, prices rose 0.3 per cent and core 0.2 per cent.

The readings were lowered in part by a methodology revision by the Bureau of Economic Analysis, which adjusted how software, portfolio management and legal services are measured. GDP for the second quarter was revised up to 2.2 per cent from 1.5 per cent.

Following the data, the odds of an October rate hike fell from 50 per cent to 35 per cent, according to market pricing.

The cooler inflation print eases pressure on the Fed, though officials remain cautious about declaring victory on prices.