US core inflation rises in July – PCE

The Personal Consumption Expenditures (PCE) Price Index, the Federal Reserve’s preferred gauge of inflation, increased by 0.2% m/m in July, easing from a 0.3% gain in June and in line with forecasts. On an annualized basis, the PCE Price Index rose 2.6%, unchanged from the prior month and matching expectations.

The Core PCE Price Index, which excludes food and energy, advanced 2.9% y/y in July from 2.8% in June, while the monthly increase held steady at 0.3%, also in line with projections.

Underlying inflation strengthened as import tariffs pushed up prices of certain goods, though elevated inflation is not expected to deter the Federal Reserve from delivering a rate cut in September.

US policymakers remain concerned about recent weakness in labor market conditions, while viewing elevated inflation as largely temporary and expecting restrictive policy, with rates held in the 4.25%-4.50% range since December, to gradually bring price pressures down.

Attention now turns to the US August labor report due next week, which is expected to provide further clarity on the sector following a sharp drop in employment last month and significant downward revisions to prior data, highlighting deeper softening in the labor market.