Inflation Gauge Remains Elevated Despite Cooling from Post-Pandemic Highs

An inflation gauge closely watched by the Federal Reserve has stayed elevated in July, despite some cooling from its post-pandemic highs. The personal consumption expenditures price index (PCE) rose 3.7% compared to a year earlier, matching June's rate and significantly above the Fed's target of 2%. This increase is partly due to higher costs for services like healthcare, utilities, and financial services.

The PCE index has been influenced by the way it calculates the cost of financial advice and software prices. Analysts note that this measure can capture business-related spending on software, even though it should only focus on consumer spending. As a result, the Commerce Department plans to adjust these measurements starting next month, which could lower measured inflation by 0.2 percentage points.

Despite the cooling of gas prices, overall inflation remains high, with prices rising 0.2% from June to July. Core prices, excluding food and energy categories, also increased 0.2%. Some Fed officials have suggested that core inflation running at about 0.2% a month would be a reassuring sign that inflation is heading back to the target.