US core inflation climbs in July – PCE

The Personal Consumption Expenditures (PCE) Price Index, Fed’s preferred inflation gauge, increased 0.2% m/m in July, down from 0.3% rise in June and in line with expectations, while annualized PCE Price Index rose 2.6%, unchanged from previous month and matching consensus.

Core PCE Price Index, which excludes volatile food and energy components, advanced 2.9% y/y in July from 2.8% in June, while monthly reading was unchanged at 0.3% and in line with expectations.

Underlying inflation picked up as tariffs on imports raised prices of some goods, but elevated inflation is unlikely to prevent the Federal Reserve from cutting interest rates in September.

US policymakers remain concerned about softening of labor market conditions in past couple of months, while seeing elevated inflation more as temporary phenomenon, which, they expect, will be curbed by current restrictive monetary policy, which the Fed has kept in the 4.25%-4.50% range since December.

The Fed will also closely watch the release of US August labor report next week, to get more information about the condition in the sector after a sharp fall in employment last month and strong downward revisions of the figures of past two months, pointed to significant weakening in the US labor sector.