The Federal Reserve’s preferred inflation gauge showed steady growth in July that was in line with economist expectations, according to Commerce Department data released Friday.
The personal consumption expenditures (PCE) price index rose 0.2% from June and 2.6% on a seasonally adjusted annual basis last month. Core PCE inflation, which removes more volatile food and energy prices, was up 0.3% month over month and 2.9% from a year ago.
Those monthly and yearly increases were roughly in line with consensus economist estimates compiled by Dow Jones and FactSet.
The headline inflation percentage of 2.6% was the same annual reading registered in June. The 2.9% annual core PCE reading was slightly higher than June’s 2.8% mark and represents the fastest year-over-year pace since February.
Despite the uptick in core inflation, consumers spent more in July.
Personal consumption expenditures, a measure of total spending on goods and services, climbed 0.5% last month. Real PCE, which adjusts for inflation, rose 0.3%.
Wells Fargo economists Tim Quinlan and Shannon Grein noted in an analysis that real consumer spending notched its best month since March, when shoppers raced to buy goods ahead of the Trump administration’s planned tariff hikes.
“Most of the spending increase in July was attributable to spending on motor vehicles and parts, where spending has been whipsawed amid tariff pricing concerns,” Quinlan and Grein wrote. “Beyond autos, durable goods spending was more modest.”
They added that “a big pickup in wages and salaries is helping households keep their head above water for now even as prices still rise.”
Friday’s inflation report did little to change investors’ outlook that the Fed will prioritize propping up the jobs market by cutting interest rates in September. As of Friday morning, the CME FedWatch odds of a rate cut next month stood around 87%, compared to 89% earlier in the week.
