PCE Inflation Gauge Remains Elevated Amid Ongoing US Trade Fights

The personal consumption expenditures price index (PCE), a key inflation gauge closely watched by the Federal Reserve, remained elevated in July, despite falling gas prices. According to the Commerce Department's report on Wednesday, prices rose 3.7% in July compared to a year earlier, matching June's rate. This is notably above the Fed's target of 2%, and has worsened since the US and Israel attacked Iran in late February, when it stood at 2.9%. The PCE index puts less weight on rental costs, which have been cooling steadily in recent months.

Excluding volatile food and energy categories, core inflation was unchanged at 3.3% in July, down from 2.6% before President Donald Trump imposed sweeping tariffs in April 2025. On a monthly basis, overall prices rose 0.2% from June to July, while core prices also increased by the same margin.

The government plans to adjust its calculations for financial advice and software prices next month, which could lower measured inflation. Economists forecast this change will reduce annual PCE inflation by around 0.2 percentage points.