US inflation ticks higher and consumer spending accelerates in July

The US personal consumption expenditures price index (PCE), closely watched by Fed as preferred inflation gauge, rose 0.2% in July after 0.1% gain in June, in line with forecast.
Annualized PCE price index increased 2.5%, unchanged from June. 

The Core PCE Index, excluding the volatile food and energy components, rose 0.2% last month, matching the expectations and June figure.
In the 12 months through July, core inflation increased 2.6%, unchanged from June. 

Relatively unchanged July numbers to contribute to wide expectations for the first Fed rate cut in September, although moderate increase in monthly figure suggests that inflation may not be under full control yet, implying that the US central bank may opt for smaler 25 basis points rate cut. 

The notion was supported by the separate report which showed that US consumer spending, which accounts for more than two-thirds of US economic activity, increased solidly in July (0.5% vs 0.3% in June), suggesting the economy remained on firmer ground early in the third quarter and arguing against a larger 50 basis points rate cut.  

The data showed that consumer spending kept strong positive momentum and contributed to a strong rise in Gross Domestic Product which grew by 3% in the second quarter, compared to 1.4% growth in the first three months of 2024. 

Solid numbers in today’s reports also eased concerns over the health of the US economy after July’s jump in the unemployment rate to near a three-year high of 4.3% dented the outlook and prompted economists to signal a larger 50 basis points rate cut.