U.S. consumer prices increased slightly more than forecast in July, according to new data from the Commerce Department, keeping inflation firmly in focus as investors assess the outlook for Federal Reserve monetary policy.
The personal consumption expenditures (PCE) price index rose 0.2% during the month, reversing a 0.1% decline in June. Economists had expected a more modest increase of 0.1%.
Annual inflation holds at 3.7%
On an annual basis, the headline PCE price index increased 3.7% in July, unchanged from June and slightly above expectations for a moderation to 3.6%.
Core PCE inflation, which strips out the more volatile food and energy components, increased 0.2% month on month. That followed a 0.1% rise in June and matched economists’ forecasts.
The annual core PCE inflation rate remained at 3.3%, unchanged from the previous month and in line with market expectations.
The PCE measures are closely monitored because they are the Federal Reserve’s preferred gauges of consumer price inflation and can influence expectations surrounding the future path of U.S. interest rates.
Personal income growth accelerates
The Commerce Department’s broader personal income and spending report also showed that household income growth strengthened during July.
Personal income increased 0.4% after rising 0.2% in June. Consumer spending, meanwhile, advanced 0.2%, slowing slightly from the previous month’s 0.3% increase.
The combination of firmer-than-expected headline inflation and stronger income growth provides further evidence of resilience in the U.S. economy, while keeping attention firmly on whether inflationary pressures will ease sufficiently to influence the Federal Reserve’s next policy decisions.