PCE Index Remains Elevated Amid Ongoing Global Tensions

The personal consumption expenditures price index (PCE) remains elevated at 3.7% in July, unchanged from June and still above the Federal Reserve's target of 2%. The ongoing Iran conflict and President Donald Trump's trade fights have pushed gas prices high, contributing to stubbornly high prices that are shaping up to be a key issue in the midterm elections.

Despite falling gas prices, the cost of services such as health care, utilities, and financial services jumped in July. However, the government plans to change the way it calculates the cost of some services starting next month, which could lower measured inflation.

The Commerce Department's report showed that core inflation was unchanged at 3.3% in July, excluding the volatile food and energy categories. Some Fed officials have said that core inflation running at about 0.2% a month would be a reassuring sign that inflation is heading back to the 2% target.

The PCE index has been criticized for its method of calculating financial advice and software prices, which may not fully capture what Americans actually pay for these services. As a result, the Commerce Department plans to adjust those measurements next month, which economists forecast will reduce annual PCE inflation by 0.2 percentage point or so.