New data shows inflation sticking around as the central bank weighs a cut
Inflation continued to challenge American consumers in July, with core prices rising to their highest level since February while spending patterns showed signs of strain from ongoing economic pressures.
The Personal Consumption Expenditures price index revealed that core inflation, which excludes volatile food and energy costs, reached 2.9% annually in July, according to Commerce Department data. This marked an increase from June’s 2.8% rate and represented the highest core inflation reading since February.
The overall inflation rate remained steady at 2.6% for the second consecutive month, matching June’s figure. Monthly price increases showed core inflation rising 0.3%, while the all-items index gained 0.2%.
Consumer spending shows resilience despite pressures
Americans maintained their spending habits despite elevated prices, with consumer expenditures increasing 0.5% in July compared to the previous month. This figure fell slightly below economist expectations of 0.6% but represented an improvement from June’s 0.4% increase.
“Consumer spending is solid, and goods inflation remains moderate for now,” said Chris Rupkey, FwdBonds chief economist, in a note to investors Friday.
The spending increase was attributed to durable goods purchases, including automobiles and financial services. July’s 1.9% monthly increase in durable goods spending marked the largest gain since March, according to Wells Fargo economists.
Tariff impact beginning to surface
Economic analysts pointed to president Trump’s trade policies as a growing factor in inflation trends, a report from CNBC noted. Trump imposed a baseline 10% tariff on all imports in April and has since implemented additional duties on various trading partners and specific goods.
“The real hit from tariffs is in the next six months,” said Heather Long, chief economist at Navy Federal Credit Union, in a CNN interview Friday. “The reason it’s been so slow is the middle class doesn’t have extra room in their budgets to absorb higher costs.”
However, goods prices actually declined 0.1% monthly in July, suggesting tariff effects have yet to fully materialize in consumer costs.
Federal Reserve rate cut expectations persist
The inflation data kept Federal Reserve rate cut expectations intact for the central bank’s September 16-17 meeting. Traders assigned an 87% probability to a rate reduction, according to CME Group’s FedWatch tool.
“Today’s numbers on both the personal consumption, expenditure, and income and spending, were right down the middle of the fairway,” said Art Hogan, chief market strategist for B. Riley Wealth, speaking to CBS MoneyWatch. “This leaves the door wide open for the Fed to cut rates in September, and likely again in October and in December.”
Income growth supports continued spending
What are your thoughts on the latest figures? Share your insights in the comments below.
