The Federal Reserve’s preferred inflation measure showed consumer prices continued to rise in July, keeping pressure on policymakers ahead of key decisions later this year.
The personal consumption expenditures price index rose a seasonally adjusted 0.2% for the month, pushing the annual inflation rate to 3.7%, according to the Commerce Department.
Both the monthly and annual headline figures came in 0.1 percentage point above the Dow Jones consensus, suggesting inflation remains stickier than markets had anticipated.
Stripping out volatile food and energy costs, core PCE posted respective gains of 0.2% and 3.3% annually, landing in line with forecasts and providing some relief to investors watching the data closely.
The Fed considers core inflation a better measure of longer-term price trends, and policymakers are likely to focus on those figures as they assess the path of monetary policy.
Personal income rose 0.4% during the month while consumer spending increased 0.2%, with both readings coming in stronger than economists had expected.
Goods prices actually declined 0.1% on the month, driven by a 2.7% decrease in gasoline and other energy-related goods alongside a 0.9% drop in furnishings and long-lasting household equipment.
Services prices rose 0.3%, pushed higher by a 1.2% increase in financial services and insurance as well as a 0.3% gain in housing costs.
Stock market futures pulled back modestly following the report’s release, while Treasury yields moved higher in immediate reaction to the data.
Inflation remains well above the Fed’s 2% target despite generally soft monthly readings through the summer, leaving officials in a difficult position heading into the autumn.
The rate-setting Federal Open Market Committee does not meet formally in August, giving policymakers a brief pause before their next gathering on 15-16 September, with markets pricing in only roughly a one-in-three chance of a rate move at that meeting.
The best probability for a rate hike is currently priced in for December, according to market expectations, leaving investors watching each data release carefully for signals of the Fed’s direction.
Fed officials are gathering this week in Jackson Hole, Wyoming, for their annual symposium, with the highlight being a policy speech scheduled for Friday from Chairman Kevin Warsh.
Since taking office in May, Warsh has been circumspect about where he sees policy heading, instead preferring that markets set the tone on interest rate expectations.
Government bond yields have surged recently, with both the 10-year and 30-year Treasuries hitting their highest levels since 2007, driven by concerns over the Fed’s inflation commitment and federal debt and deficit issues.
Treasury Secretary Scott Bessent announced an initiative a week ago in which his department would step up buybacks of government debt, though market participants have expressed doubt about whether the move will have a meaningful impact on yields.