Inflation edged higher in July, according to the measure favored by the Federal Reserve as the central bank prepares to enact reduced interest rates for the first time in more than four years.
The Commerce Department reported on Friday that the personal consumption expenditure price index rose 0.2% in the month and was up 2.5% from the same period a year ago, exactly in line with the Dow Jones consensus estimate.
Excluding volatile food and energy prices, core PCE also rose 0.2% for the month but was up 2.6% from a year ago. The 12-month figure was slightly softer than the estimate of 2.7%.
Fed officials tend to focus more on the core reading as a better measure of long-term trends. Core and headline inflation on a 12-month basis were the same in June.
Excluding food, energy and housing, PCE rose just 0.1% in the month. As other components of easy inflation, the shelter has proven to be stubborn, again rising 0.4% in July, according to Friday’s report.
Elsewhere in the report, the department’s Bureau of Economic Analysis said personal income rose 0.3%, slightly higher than the 0.2% estimate, while consumer spending rose 0.5%, in line with the forecast.
From a price point of view, inflation has changed little over the past month. BEA said good prices fell by less than 0.1% even as services increased by 0.2%.
On a 12-month basis, goods also fell by less than 0.1%, while services rose by 3.7%. Food prices rose 1.4% and energy accelerated 1.9%.
Markets did not react to the news, with equity futures showing a slightly higher open on Wall Street and Treasury yields also higher.
The report explains the market price with a 100% probability of a rate cut in September, with the uncertainty being whether the Fed will take additional steps to lower the benchmark rate by a quarter percentage point or be more aggressive and move half-point lower.
In recent times, policymakers such as Chairman Jerome Powell have expressed confidence that inflation is moving back toward the Fed’s 2% target.
The Fed is now expected to shift from an almost complete focus on reducing inflation to an equal concentration on supporting the labor market. Although the unemployment rate is still low at 4.3%, it has been trending higher over the past year, and surveys show a decline in recruitment and a perception among workers that jobs are getting harder to come by.
