The US Personal Consumption Expenditures (PCE) price index, the Federal Reserve's preferred inflation gauge, increased by 0.2% month-over-month in July for its core measure, which excludes volatile food and energy prices. This increase was in line with market expectations, keeping the year-over-year core PCE at 3.3%, the same as June's figure. The headline PCE, which includes all categories, is expected to have risen by 3.6% year-over-year, slightly down from 3.7% in June.
Simultaneously, consumer spending remained flat in July, a significant slowdown compared to the previous months. This stagnation in spending, following a 0.3% rise in June and a 0.9% rise in May, suggests a potential cooling in economic activity. The combination of stable core inflation and stalled consumer spending provides a mixed signal for the Federal Reserve as it considers future monetary policy decisions.
Analyst reactions indicate that a core PCE print of 0.2% monthly, consistent with a 3.3% annual rate, might reinforce expectations for inflation to cool, potentially leading to a lower probability of a Fed rate hike in September. Conversely, if core PCE had been higher, it would have strengthened the case for further rate hikes. The market is now watching for revisions in GDP figures and further details on personal consumption, especially the breakdown between goods and services, for additional clues on economic momentum.
