PCE Index Remains Elevated Despite Gas Price Decline

The personal consumption expenditures price index (PCE) remained elevated in July at 3.7% year-over-year, matching June's figure and still above the Federal Reserve's target of 2%. The PCE index has been running hotter than the consumer price index (CPI), partly because it puts less weight on rental costs, which have cooled steadily.

Despite a decline in gas prices, core inflation remained unchanged at 3.3% in July, with some Fed officials viewing this as a reassuring sign that inflation is heading back to target. However, others point out that the PCE index has been artificially inflated by its method of calculating financial advice costs and software prices.

The Commerce Department plans to adjust these measurements starting next month, which economists predict will reduce annual PCE inflation by 0.2 percentage points. This change may bring measured inflation more in line with the actual experience of Americans, who are still feeling the pinch from higher costs.