Inflation Gauge Remains Elevated as Fed Weighs Interest Rate Hike

The inflation gauge closely watched by the Federal Reserve remained elevated in July, according to the latest data. The personal consumption expenditures price index rose 3.7% compared to a year ago, matching June's figure and still above the Fed's target of 2%. This increase is partly due to higher costs for services such as health care, utilities, and financial services.

The Commerce Department plans to adjust its calculation methods starting next month, which may lower measured inflation by 0.2 percentage points. Economists agree with these changes, but warn that inflation, even at lower levels, has eroded incomes. Consumer spending adjusted for inflation was unchanged in July, and gas prices have rebounded this month.

The new data is unlikely to resolve a split within the Fed over whether to raise interest rates to combat higher prices. Some officials support increasing rates to slow borrowing and spending, while others prefer to hold steady and see if inflation cools on its own.