Inflation in the U.S. ticked up slightly in July, according to the Federal Reserve’s preferred measure, as the central bank prepares for its first interest rate cut in over four years. The Commerce Department reported on Friday that the personal consumption expenditures (PCE) price index increased by 0.2% for the month and 2.5% on a year-over-year basis, matching Dow Jones consensus estimates.
When excluding the volatile food and energy categories, core PCE also saw a 0.2% monthly increase and a 2.6% rise from the previous year. This 12-month core inflation figure was slightly below the anticipated 2.7%. Fed officials often prioritize the core PCE measure as it better reflects long-term inflation trends. Both the core and headline inflation figures remained consistent with June’s levels.
A notable point in the report was that core prices, excluding housing costs, increased by just 0.1% for the month. Despite some easing in other inflation components, housing costs continued to rise, with a 0.4% increase in July.
The report from the Bureau of Economic Analysis also highlighted a 0.3% rise in personal income, slightly surpassing expectations, and a 0.5% increase in consumer spending, which was in line with forecasts. However, the personal savings rate dipped to 2.9%, marking its lowest level since June 2022.
The data showed that inflationary pressures remained relatively stable, with goods prices decreasing by less than 0.1%, while services saw a 0.2% increase. Over the past 12 months, goods prices fell slightly, while services jumped by 3.7%. Food and energy prices rose by 1.4% and 1.9%, respectively.
Markets showed little reaction to the news, with equity futures pointing to a modestly higher opening on Wall Street and Treasury yields edging upward. According to market expectations, there is now a 100% chance of a rate cut in September, with debates ongoing over whether the Fed will reduce rates by 25 or 50 basis points.
Economist Joseph Brusuelas of RSM noted that the data underscores the re-establishment of price stability across the economy and supports continued economic expansion as the Fed begins its rate-cutting campaign. The focus now shifts to the upcoming nonfarm payrolls report for August, expected to show an increase of approximately 175,000 jobs.
