Core Inflation Remains Stuck Above Target as US Economy Faces Challenges

The US Federal Reserve's preferred inflation measure, Core PCE (Personal Consumption Expenditures index), remains above its 2% target. The latest update, released this week, came in at +3.3% year-on-year, unchanged from the previous month but still significantly higher than the desired rate.

This has been the case for over five years now, and it's not just Core PCE that's a concern. The Producer Price Index (PPI), which measures wholesale inflation, also rose to +4.2% in July, up from +3.7% in April. This could lead to higher costs being passed on to consumers or absorbed by companies, negatively impacting profitability.

The Fed is worried about inflation, with three of its 12 FOMC members citing rising inflationary pressures as a reason for voting for a rate hike at the last meeting. However, signs are emerging that the US economy may not be robust enough to handle higher borrowing costs. Weak Non-Farm Payroll reports and poor Retail Sales numbers suggest lower-income households are struggling.