Fed's Favored Inflation Gauge Matches Expectations: July PCE Price Index Inches Up To 3.3%

The Federal Reserve’s favored inflation measure, which can encompass a broad array of consumer expenses, experienced a slight increase last month from its lowest levels in over two years.

In July, the year-on-year increase in the Personal Consumption Expenditures (PCE) price index reached 3.3%, surpassing the 3% figure for June and matching economists’ projections of 3.3%, according to data released by the Bureau of Economic Analysis Thursday.

The PCE price index recorded a monthly advancement of 0.2%, matching projections and maintaining the same pace observed in June.

The core PCE price index, which excludes volatile food and energy items and is closely monitored by the Federal Reserve to reveal underlying inflation trends, exhibited a marginal uptick from June’s 4.1% to 4.2% in July, matching economists’ estimates.

Similarly, on a monthly basis, the core PCE price index also saw a 0.2% increase, mirroring June’s rise and aligning with projected outcomes.

Concurrently, the BEA reported that personal income grew by $45 billion or 0.2% on a monthly basis in July, falling short of both the previous and anticipated 0.3% uptick. Meanwhile, personal spending surged by $144.6 billion or 0.8% in July 2023, marking the largest monthly increase since January and exceeding market forecasts for a 0.7% rise, highlighting consumers’ ability to endure elevated prices and interest rates.

Market Reactions: Dollar Steady, Stocks Set To Open Higher

The U.S. dollar index, as closely tracked by the Invesco DB USD Index Bullish Fund ETF UUP, was 0.3% higher on Thursday, snapping three straight negative sessions and holding up its gains following the data release.

Interest rate expectations didn’t move meaningfully, with money markets assigning a 9.5% chance of a rate hike in September and a 48% chance of one by the November meeting.

U.S. equity futures displayed a slight positive trend prior to the New York opening bell. The SPDR S&P 500 ETF Trust SPY is in the midst of a four-day winning streak.

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