Inflation in July edged higher according to the Personal Consumption Expenditures (PCE) price index, a key measure favored by the Federal Reserve.
The Commerce Department’s report released Friday showed a 0.2% increase in the PCE index for July, which was consistent with economists’ expectations. The index rose 2.5% last year, in line with the Dow Jones consensus.
The core PCE index, which excludes volatile food and energy prices, increased 0.2% for the month. On an annual basis, core PCE increased by 2.6%, slightly less than the 2.7% forecast. The Federal Reserve closely monitors this core measure to gain a better understanding of long-term inflation trends. The 12-month figures for core and headline inflation remained consistent with those reported in June.
The report’s detailed analysis of inflation components reveals a mixed picture. Shelter costs climbed 0.4% in July, while core prices excluding housing rose only 0.1%. Goods prices fell by less than 0.1 percent, while service prices increased by 0.2%. On a yearly basis, goods prices fell slightly, while services rose 3.7%. Food prices rose 1.4%, while energy prices increased 1.9%.
Personal income grew by 0.3%, exceeding the expected 0.2% increase, and consumer spending was up 0.5%, matching predictions. However, the personal savings rate fell to 2.9%, the lowest level since June 2022.
The inflation data comes as markets prepare for the Federal Reserve’s first interest rate cut in over four years. During its September meeting, the Fed is expected to lower its benchmark interest rate by at least 0.25 percentage points, with some market participants considering a more aggressive cut of 0.50 percentage points. This adjustment aims to address both inflation and changing labor market conditions.
Fed Chair Jerome Powell and other policymakers have expressed confidence in the inflation outlook and are preparing to shift their focus to supporting employment. Despite recent inflationary pressures and concerns about rising commodity prices, overall economic indicators point to continued consumer spending and income growth.
The Associated Press, CNBC and the Hill contributed to this report.
