U.S. PCE Inflation Holds Steady in July, Core Gauge Edges Higher

The U.S. Bureau of Economic Analysis (BEA) reported Friday that annual inflation, measured by the Personal Consumption Expenditures (PCE) Price Index, remained at 2.6% in July, in line with market expectations.

Core PCE Inflation

• Core PCE, which strips out volatile food and energy prices, rose to 2.9%, slightly higher than June’s 2.8%.
• On a monthly basis, PCE rose 0.2%, while core PCE increased 0.3%, both in line with forecasts.
• This marks the highest annual core reading in five months, reinforcing concerns about sticky inflation.

Personal Income & Spending

• Personal income grew 0.4% in July, suggesting continued household earnings resilience.
• Personal spending climbed 0.5%, showing robust consumer activity despite inflationary pressures.

Market Implications

• These figures may complicate the Federal Reserve’s September policy decision. While inflation is cooling compared to last year, the core reading remains above the Fed’s 2% target, raising the possibility the central bank could proceed cautiously on rate cuts.
• Combined with Powell’s recent comments acknowledging labor market cooling, markets will be watching closely whether the Fed balances growth risks against persistent price pressures.