Inflation Is 'Becoming Boring Again' As Numbers Are 'Right On Target': Economists

Friday’s report on inflation indicated that prices are beginning to moderate as consumer spending continues to exceed expectations and the economy remains resilient, according to economists.

“This is a double dose of good news on inflation and economic growth. Inflation prints are slowly but surely becoming boring again as this report continues the recent streak of benign core and headline inflation prints,” Olu Sonola, head of U.S. economic research at Fitch Ratings, told Reuters.

“Consumer spending continues to surprisingly exceed all expectations, a clear indication that the economy continues to be in good shape with solid above-trend growth.”

The Personal Consumption Expenditures (PCE) Price Index increased by 2.5% in July 2024 from a year ago, according to data from the U.S. Bureau of Economic Analysis released Friday.

The PCE price index held steady with the 2.5% rise seen in July 2023 and last month but fell short of a forecasted 2.6%, according to TradingEconomics.

The consumer sector rose by 0.2% from June, double last month’s 0.1% pace but meeting market expectations.

After taking out food and energy prices, the year-over-year core PCE price index grew by 2.6% in July, as it did in June but missing a forecasted 2.7% jump.

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The core PCE price index also rose by 0.2% on a monthly basis in July to match market expectations and June’s pace.

Personal spending increased by 0.5% in July compared to the previous month, exceeding June's 0.2% rise and meeting forecasts, while personal income picked up by $75.1 billion in July to post a 0.3% rise from June and 0.1 percentage point uptick from the prior month’s growth and market expectations.

The July data on inflation supports the Federal Reserve’s plan to cut rates in September, a move that will provide relief for households looking to refinance and firms waiting for an easing of financing costs to support business expansion, said Joseph Brusuelas, chief economist at RSM US LLP.

“Disinflation amidst strong household consumption, income and sustained income gains above inflation continues to be the defining narrative of the U.S. economy as it heads into the second half of the year,” he wrote in a note.

“With underlying inflation in the economy advancing at 2.5% with internal dynamics pointing towards further disinflation going forward from an economic point of view, price stability has been re-established across the American economy,” he added

The July PCE report was “a non-event” and confirmed Fed Chair Jerome Powell said the focus will be likely on employment rather than inflation, said Sam Stovall, chief investment strategist at CFRA Research.

“The report was pretty much right on target as analysts had been expecting,” he told Reuters.

Friday’s report should calm Fed concerns that inflation’s downward trajectory has stalled or that inflation will inch higher, said Quincy Krosby, chief global strategist at LPL Financial.

“Today’s report is market positive for equities and Treasuries alike,” Krosby said.

“Moreover, today’s report allows the Fed to focus squarely on its maximum employment mandate making the September 6 payroll release increasingly important for both the Fed and investors.”

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