U.S. inflation edges up, and consumer spending accelerates in July
The U.S. personal consumption expenditures (PCE) price index, closely monitored by the Federal Reserve as its preferred inflation gauge, rose 0.2% in July, following a 0.1% increase in June, aligning with forecasts. The annualized PCE price index increased by 2.5%, unchanged from June.
The Core PCE Index, which excludes volatile food and energy components, also rose 0.2% in July, matching expectations and June’s figure. On a yearly basis, core inflation remained steady at 2.6%.
These relatively stable July figures reinforce widespread expectations for a Fed rate cut in September. However, the modest increase in the monthly data suggests inflation may not be fully under control, indicating the central bank may lean towards a smaller 25 basis point cut.
This outlook is supported by a separate report showing robust U.S. consumer spending, which accounts for over two-thirds of the country’s economic activity. Consumer spending increased solidly in July by 0.5%, up from 0.3% in June, suggesting the economy remained resilient at the start of the third quarter. This strength in consumer spending argues against a larger 50 basis point rate cut.
The data also highlighted strong momentum in consumer spending, which significantly contributed to the rise in Gross Domestic Product (GDP). The economy grew by 3% in the second quarter, compared to 1.4% growth in the first quarter of 2024.
Today’s solid numbers ease concerns about the U.S. economy’s health after July’s increase in the unemployment rate to a near three-year high of 4.3%, which had raised expectations for a larger rate cut.
