The Fed’s preferred inflation indicator showed that prices took a breather last month as fuel costs continued to fall from record levels.
The PCE price index rose 6.3% for the year ended July, down from a year ago It hit a 40-year high of 6.8% in JuneAccording to data from the Bureau of Economic Analysis. On a monthly basis, the PCE price index fell 0.1%.
After excluding the more volatile food and energy prices, the core PCE index rose 4.6% from a year ago, the lowest annual increase since October 2021.
“What we saw today was a pullback from the surprise spike in July, with inflation now back to where it was in May,” said Scott Brave, lead consumer spending economist at Morning Consult. This is still more than 6%. It’s still too high for the Fed, for sure.”
And on Friday, during a brief speech at the Federal Reserve’s annual Jackson Hole symposium in Wyoming, President Jerome Powell said the same thing.
“While the lower inflation readings for July are welcome, the improvement in one month is much less than what the committee will need to see before we can be confident of lower inflation,” Powell said. “We are purposefully moving our policy position to a level that is restrictive enough to bring inflation back to 2%.”
It was largely expected calming PCE like Consumer Price Index for the month of July, another important inflation measure, also showed a slowdown in price increases. Most Important Shift: Energy Prices It dropped dramatically last month.
The latest BEA data reflects this decline. In June, energy prices were up 43.4% from the same period last year. Last month, that annual increase was 34.4%.
Lower gas prices helped boost consumer confidence, according to him On new data released Friday by the University of Michigan; However, optimism about the macro economy remained at historic lows.
While American consumers received a welcome reprieve at the pump in July, inflation remains uncomfortable — especially for low- and middle-income Americans, Brave said.
“The pressure is increasing over time here on family budgets,” he said. Real incomes, and inflation-adjusted incomes, are still not actually rising strongly. This presents pressure and forces difficult decisions to be made.”
The personal savings rate as a percentage of disposable income remained at 5% – its lowest position in more than 13 years.
Real personal disposable income rose 0.3% from June, but remained down 3.7% year over year, according to BEA data. Consumer spending also rose slightly, rising 0.2% in the month, adjusted for inflation.
While much of the current influx of spending has been in services — people are now able to vacation and dine out in restaurants after being restricted during the pandemic — some July dollars have gone into permanent good categories like cars, furnishings and entertainment equipment.
Wells Fargo economists Tim Quinlan and Shannon Serry wrote in a note published Friday that strength in this type of spending is likely to decline in the coming months.
“We are still not looking at spending on durable goods to drive consumption forward,” they wrote. “The cost of financing these expensive items is set to rise as the Fed rates rise.”
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