US Economy Expands 1.5%, Missing Estimates as Inflation Remains Elevated

The US economy grew at an annualized rate of 1.5% in the second quarter, missing estimates of 1.8%. The slowdown in growth was accompanied by a minor relief in inflation, with the personal consumption expenditures price index declining 0.1% on a monthly basis in June.

However, annual headline inflation remained at 3.7%, significantly above the Federal Reserve's 2% objective. Core PCE, which excludes volatile food and energy prices, increased 0.1% during the month, with an annual core inflation rate of 3.3%.

Economists attributed the minor relief in inflation to larger tax refunds this year, which helped cushion households from higher fuel costs. Consumer spending remained a key source of resilience, accelerating to a 3.2% annualized pace during the quarter.

The strength in consumption was despite elevated energy prices linked to the ongoing conflict in the Middle East. The GDP estimate was compiled before the release of June's advance economic indicators, which showed a moderate narrowing in the goods trade deficit and unchanged retail inventories.