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Inflation ticked up in July, as indicated by a measure favored by the Federal Reserve ahead of its anticipated interest rate cut – the first in over four years.
The Commerce Department released data showing that the personal consumption expenditures price index increased by 0.2% for the month and was up 2.5% from the same period last year, aligning precisely with expectations. Core PCE, which excludes volatile food and energy prices, also rose by 0.2% for the month and was up 2.6% from a year ago.
Fed officials typically give more weight to the core reading for a better assessment of long-term trends. Both core and headline Inflation over a 12-month period remained unchanged from June.
Furthermore, the report revealed that personal income grew by 0.3%, slightly above the anticipated 0.2%, while consumer spending rose by 0.5%, in line with forecasts. Despite a decrease in the personal savings rate to 2.9%, the lowest since June 2022, spending continued at a robust pace.
In terms of Inflation components, goods prices saw a marginal decrease, while services increased slightly. On a 12-month basis, goods prices were nearly unchanged, while services surged by 3.7%. Food prices rose by 1.4%, and energy costs increased by 1.9%.
The financial markets responded minimally to the data, with equity futures signaling a slightly higher open on Wall Street and Treasury yields also climbing. This information suggests a re-establishment of price stability throughout the U.S. economy, paving the way for growth and hiring.
According to economist Joseph Brusuelas, the American economy is positioned to grow steadily as the Fed embarks on its rate-cutting campaign, supporting risk-taking and investment opportunities.
Following the report, market expectations for a rate cut in September remained at 100%, with the probability leaning towards a quarter-point reduction rather than a half-point decrease.
Federal Reserve Chair Jerome Powell and other policymakers have expressed confidence in the progress of Inflation towards the target goal of 2%. The focus of the Fed is likely to shift from solely addressing Inflation to also supporting the labor market, which has shown signs of slowing down.
Attention is now turning towards the upcoming nonfarm payrolls report for August, expected to show an increase of approximately 175,000 jobs.
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Lucas Bennett, completed his Finance degree at Bocconi University in Italy in 2018. He is highly skilled in corporate finance and risk management, beginning his career at a hedge fund in Milan. Lucas expertise extends to consulting for leading European firms, particularly within the energy markets sector. His analytical skills and strategic mindset have made him a sought-after consultant, and he continues to explore new opportunities within the financial services industry across Europe.
