PCE Inflation Tops Forecasts as Spending Holds Up

U.S. inflation picked up a little faster than economists expected in July, while household income and spending both beat forecasts. The data arrived alongside the second estimate of second-quarter GDP and other fresh economic releases from the U.S. Bureau of Economic Analysis.

Inflation runs a bit hotter

The PCE price index, the Federal Reserve’s preferred inflation gauge, rose 0.2% in July after a small decline in June. On a year-over-year basis, it held at 3.7%, slightly above expectations. Core PCE, which strips out food and energy, increased 0.2% on the month and 3.3% from a year earlier, matching economists’ forecasts.

The broader GDP release showed the economy expanding at a 1.5% annualized pace in the second quarter, unchanged from the earlier estimate. Consumer prices within that report also firmed, with the GDP price index climbing to 6.4% year over year, the highest reading on that measure in four years. The combination points to growth that is still positive but not especially strong, alongside inflation that remains sticky.

Income and spending remain resilient

Personal income rose 0.4% in July, double the pace expected by economists, and consumer spending also increased 0.2%, again ahead of forecasts. That was slower than June’s 0.3% gain, but it still showed households were spending despite the higher price backdrop. Real spending, adjusted for inflation, was unchanged on the month.

The mix matters because it suggests consumers are still supporting activity even as purchasing power is pressured. The data do not show a sharp deterioration in demand, but they also do not point to a rapid return toward the Federal Reserve’s 2% inflation goal. For markets, that keeps the focus on how long policymakers may need to stay restrictive.

Durable goods orders added another sign of underlying economic resilience. They rose 1.1% last month, more than expected, after an unrevised 0.3% increase in June. Taken together, the figures leave the picture of an economy that is slowing only gradually, with inflation cooling unevenly rather than decisively.

This article is not investment advice and recommends no asset, level or direction; a single session's move is not evidence of a trend. For background see Economy, Budget Deficit, Central Bank, and for terms the finance glossary.