PCE Inflation Stalls at 3.7% as Core Prices Remain Elevated

The latest Personal Consumption Expenditures (PCE) inflation report from the US Bureau of Economic Analysis revealed that prices rose 0.2% in July, leaving the annual inflation rate at a stubborn 3.7%. The July PCE report was firmer than economists expected, with core prices increasing by 0.2% and remaining at 3.3% on an annual basis.

This news is particularly concerning for the Federal Reserve, which uses PCE as its preferred inflation measure when referring to its 2% longer-run goal. A 3.3% core rate remains a considerable distance from this target, and the lack of meaningful progress in the annual core figure over the past few months is starting to raise eyebrows.

July's result also contrasts with June's cleaner inflation story, where headline PCE fell 0.1% due to lower energy prices. However, July saw a return to monthly growth for headline PCE and an acceleration of core PCE on a monthly basis.