The Federal Reserve’s preferred inflation gauge, the core PCE price index, climbed 3.3% year-over-year in July, matching the forecast. This marks no change from June's 3.3% reading. On a monthly basis, core prices rose 0.2%, also matching estimates.
The headline index rose 3.7% year-over-year, slightly ahead of forecasts for 3.6%, and rose 0.2% on a monthly basis, which was also slightly ahead of estimates of 0.1%.
Understanding the PCE Price Index
Personal consumption expenditures (PCE) track the actual spending habits (personal consumption) of domestic consumers. The headline number includes all categories, capturing the immediate "sticker shock" felt by households at the pump and grocery store. Core PCE excludes food and energy, making it less volatile than the headline PCE and thus provides a clearer view of long-term inflation trends.
The adjacent thumbnail gives us a close-up of the trend in YoY core PCE since January 2012. The first string of red data points highlights the 12 consecutive months when core PCE hovered in a narrow range around its interim low. The second string highlights the lower range from late 2014 through 2015. Core PCE shifted higher in 2016 with a decline in 2017, 2019, and 2020, with a major jump in 2022.
The following chart illustrates the monthly year-over-year changes since 2000, with the 2% benchmark highlighted as the Fed's ultimate target.
For a long-term perspective, here are the same two metrics spanning five decades.
Inflation: The Fed's 2% Target
The Federal Reserve concluded its fifth meeting of the year by maintaining the federal funds rate at 3.50%–3.75%. The decision, which markets had largely priced in, keeps the benchmark rate at its lowest level since November 2022 for the fifth meeting in a row. However, the recent PCE figures suggest the "last mile" of the inflation fight is proving difficult.
In a statement nearly identical to that of the prior meeting, the Committee noted, "Inflation remains elevated relative to the Committee's 2 percent goal, in part reflecting supply shocks that have driven price increases in certain sectors, including energy." They stated that they will "deliver price stability."
The Fed will meet again in September where they are expected to raise rates for the first time this year. At the time of writing, the CMEFedWatch Tool shows a 62% likelihood the Fed will hold rates steady versus a 38% likelihood of raising rates by 25 basis points.
For further comparison on how this data aligns with other metrics, see our analysis on PCE vs. CPI.
Read more updates by Jen Nash
The adjacent thumbnail gives us a close-up of the trend in YoY core PCE since January 2012. The first string of red data points highlights the 12 consecutive months when core PCE hovered in a narrow range around its interim low. The second string highlights the lower range from late 2014 through 2015. Core PCE shifted higher in 2016 with a decline in 2017, 2019, and 2020, with a major jump in 2022.
