Grapevine

The Fed’s favorite inflation indicator increased 0.2% in July, as expected

Inflation edged higher in July, according to a measure favored by the Federal Reserve as the central bank prepares to enact its first interest rate reduction in more than four years.

The Commerce Department reported Friday that the personal consumption expenditures price index rose 0.2% on the month and was up 2.5% from the same period a year ago, exactly in line with the Dow Jones consensus estimates.

Excluding volatile food and energy prices, core PCE also increased 0.2% for the month but was up 2.6% from a year ago. The 12-month figure was slightly softer than the 2.7% estimate.

Fed officials tend to focus more on the core reading as a better gauge of long-run trends. Both core and headline inflation on a 12-month basis were the same as in June.

Core prices less housing increased just 0.1% on the month. As other inflation components ease, shelter has proven to be stubborn, again rising 0.4% in July, according to Friday's report.

Elsewhere in the report, the department's Bureau of Economic Analysis said personal income increased 0.3%, slightly higher than the 0.2% estimate, while consumer spending rose 0.5%, in line with the forecast. Spending continued at a solid clip even though the personal savings rate fell to 2.9%, the lowest since June 2022.