The Federal Reserve’s preferred rate of inflation rose slightly annually in July, underscoring that the fight to bring inflation down could be slow and difficult.
The core personal consumption expenditures (PCE) index, which excludes the highly volatile food and energy costs, edged up to 4.2% year-on-year in July’s reading, compared to a 4.1% pace recorded in June. But month-over-month price growth remained relatively flat at 0.2%, the Bureau of Economic Analysis announced last Thursday morning.
Economists polled by FactSet forecast core PCE to reach 4.2% in July and rise 0.2% on the month.
Headline PCE rose to 3.3% in July, in line with economists’ expectations, after falling to 3% in June. On a monthly basis, the headline PCE index showed price growth was about 0.2%, also in line with expectations from economists surveyed by FactSet.
July headline inflation led to a 0.4% rise in services prices, a 0.3% decline in goods prices. Food prices rose 0.2%, while energy prices rose 0.1%, according to the BEA.
Like the consumer price index, the PCE index suffers from so-called base effects, whereby annual inflation is calculated by comparing prices a year ago. The latest inflation readings, for example, are compared to a year ago when inflation was rising at a sharper pace and peaked for the cycle. However, inflation started to slide in late summer 2022, which means that the comparison with last year is not so favorable now.
“Markets should be encouraged by the lack of inflation at their next meeting as it is unlikely to move the Fed’s bias to leave rates unchanged at their next meeting,” wrote Chris Zaccarelli, chief investment officer of Charlotte, N.C.-based independent advisors. Union.
(This is a developing story. Please check back soon for more details and analysis. See what to expect from the report.)
The Federal Reserve’s preferred measure of inflation is expected to show a rise in inflation in July, breaking a downward trend seen in recent months.
The Bureau of Economic Analysis on Thursday will release the Personal Consumption Expenditure (PCE) price index and the core PCE, which excludes food and energy prices. Federal Reserve Chairman Jerome Powell said in his Jackson Hole speech last week that officials tend to closely monitor core PCE because food and energy prices are more influenced by volatile global conditions and can therefore provide a misleading view of U.S. inflation.
Core PCE declined earlier this summer, falling to 4.1% in June from 4.6% in May. But economists surveyed by FactSet believe July’s core annualized PCE inflation rate will rise slightly to 4.2 percent. Each month, core PCE is expected to rise According to FactSet, it fell slightly to 0.2% in July from 0.17% in June.
of Estimates of the Nowcast Federal Reserve Bank of Cleveland Core PCE inflation for July was 4.23 percent as of Wednesday. The Cleveland Fed estimates the current rate of inflation in the month or quarter before the official CPI or PCE inflation data is released.
Additional inflation should be read.
In a speech on August 25, Powell noted that core PCE inflation had reached 5.4% in February 2022 and has gradually declined in recent months. However, he underlined that it is still unclear how long these low readings will continue or where inflation will settle in the coming quarters. Moreover, he foresaw in the speech that the initial reading of the core PCE rate in July was 4.3%.
Core inflation, which households and businesses face directly, is expected to rise slightly year-over-year — to 3.3% from 3% in July, according to economists surveyed by FactSet. Monthly headline inflation is expected to increase slightly to 0.2% in July from 0.16% in June, according to FactSet.
Both headline and core PCE measures are likely to remain above the Fed’s 2 percent. “Twelve-month core inflation is still high, and there is further cushion to return to price stability,” Powell said last week.
Like July’s consumer price index reading, the latest PCE reading suffers from so-called base effects, which compare annual inflation to year-ago rates. The latest rate of inflation compares with the high rate of inflation seen at the end of last spring, when price growth reached its peak for the cycle. Inflation began to slide late last summer, which means that year-over-year comparisons are not so favorable now.
The tougher inflation trends aren’t a shock to Powell and other Fed officials, especially given that July’s annual core PCE rate has already been announced. So the latest PCE inflation rate is unlikely to change the overall picture much, especially as inflation remains above the central bank’s target, PNC chief economist Gus Facher wrote.
Faucher expects the Fed to maintain a tight monetary policy in the near term, but does not expect the Federal Open Market Committee to raise the federal funds rate when it meets Sept. 19-20.
Much of Wall Street’s betting is the same. The probability that the Fed will keep the federal funds rate unchanged in September was 90.5% on Wednesday. According to the CME FedWatch toolWhich path will the interest-rate move forward?
July PCE data will be released Thursday morning at 8:30 am EDT.
Write to Megan Leonhardt at [email protected]
