US Core Inflation Rate Remains Above Fed Target

The core Personal Consumption Expenditures (PCE) inflation rate in the US remains above the Federal Reserve's target. The rate increased by 0.2% in July, bringing the year-on-year rate to 3.3%, which is 1.3 points above the central bank's target of 2%. This metric is closely watched by the Fed as it measures the evolution of prices of goods and services consumed by American households.

The PCE core measure excludes food and energy prices, which are volatile components that can skew the overall inflation rate. The Federal Reserve uses this indicator to set its inflation target of 2% precisely, not the Consumer Price Index (CPI). In July, the PCE core stood at 3.3%, still above the Fed's target.

The data from the PCE is significant as it helps the Fed understand the persistent trend of prices in the medium term. The Federal Reserve does not rely solely on this indicator to make monetary policy decisions but also considers employment, economic growth, wages, inflation expectations, financial conditions, and risks to the system. A core inflation rate anchored above 3% limits the margin for the Fed to relax monetary policy quickly.