Consumer prices held steady as income and spending rose in July, according to the latest Personal Consumption Expenditure (PCE) Price Index.
- M-O-M: Consumer prices rose 0.2% in July, up from June’s 0.1% rise. This marks the highest level of monthly inflation in the past three months, though it remains the third-lowest this year.
- Y-O-Y: Year-over-year, price growth held steady at 2.5%—a three-year low, matched four times in 2024.
Core prices, which exclude volatile food and energy costs, also rose 0.2% in July, mirroring June’s performance. Year-over-year core inflation remained at 2.6% for the third consecutive month, maintaining a three-year low.
Zoom in: Personal spending jumped 0.5% in July, up from 0.3% in June, slightly surpassing the 4.1% average seen this year. Personal income also increased by 0.3%, beating expectations and up from a 0.2% rise in June. This was slightly above the 2.8% average for 2024.
The big picture: The report, closely watched following Federal Reserve Chair Jerome Powell’s Jackson Hole speech, provided little clarity on the Fed’s next move. Despite inflation remaining above the Fed’s 2% target, the data does not indicate a clear direction for future policy. Economists are divided on whether the Fed will opt for a 25 or 50 basis point rate cut in the coming months.
- Between the lines: While inflation is still running hot, the lack of directional clarity in the data suggests that next week’s jobs report will be even more crucial for determining the Fed’s course of action. Markets are now looking to employment figures to gauge whether the Fed will lean towards a more aggressive or cautious approach in its rate decisions.
What’s next: All eyes will be on the upcoming jobs report, which could play a pivotal role in shaping the Fed’s monetary policy. The stakes are high as the central bank navigates the delicate balance between curbing inflation and avoiding an economic slowdown.
