Inflation gauge preferred by the Fed rises to 4.2% as housing and healthcare costs increase
The Fed’s preferred inflation measure rises to 4.2% as housing and healthcare costs rise
- PCE’s core price index rose 4.2% in July from a year ago, a slight increase from June
- That’s the figure the Fed’s policymakers use for their 2% inflation target
- The increase was fueled by inflation for services, including housing and healthcare
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The Federal Reserve’s preferred inflation measure rose last month, a sign that the central bank’s battle against price increases is not over.
Excluding food and energy prices, the price index for personal consumer spending rose 4.2 percent in July from 4.1 percent in June, the Commerce Department reported Thursday.
The so-called core PCE figure is the figure that Fed policymakers are targeting for their annual inflation target of 2 percent. In February 2022, a peak of 5.4 percent over a period of 40 years was reached.
Last month’s increase was fueled by rising prices for services, including housing and health care, while overall commodity prices actually fell from a year ago, led by declines in the cost of furniture and recreational goods.
The new inflation numbers were in line with expectations, raising hopes that the Federal Reserve could pause its aggressive rate hikes at its next meeting in September.
Excluding food and energy prices, the price index for personal consumption expenditure rose 4.2 percent in July, compared to 4.1 percent in June
βThe data suggests that inflation progression will reverse, although our estimates suggest price pressures will ease over the remainder of the year,β High Frequency Economics chief economist Rubeela Farooqi wrote in a letter to clients.
The PCE measure for all items, including food and energy, rose 3.3 percent year-on-year last month, compared to 3 percent the month before.
The services sector recorded an annual increase of 5.2 percent β ββin stark contrast to the price of goods, which fell by 0.5 percent.
According to the CME Group’s FedWatch tool, financial markets are still pricing an 88.5 percent change in the Fed leaving its benchmark overnight interest rate unchanged.
The S&P 500 and the Dow Jones were expected to open higher following the latest inflation data, while the Nasdaq composite pointed slightly lower.
Month over month, the PCE and core PCE both rose 0.2 percent, the same monthly increase they both posted in June.
The latest data follows other recent reports suggesting that the economy and the labor market are slowing enough to cool inflationary pressures.
The inflation gauge released on Thursday is separate from the better-known consumer price index, which can be seen above
For example, the number of advertised job openings fell in July, and fewer Americans are quitting their jobs to seek better opportunities.
Both trends ease the pressure on companies to raise wages to find and keep workers β a move that tends to perpetuate inflation as employers raise prices to offset higher labor costs.
The inflation meter that was issued on Thursday is separate from the better-known consumer price index.
Earlier this month, the government reported that CPI rose 3.2 percent in July from a year earlier, after peaking at 9.1 percent in June 2022.
Story in development, more to follow.