Aug 31, 2023 - Economy

Fed's preferred inflation gauge ticks up in July

Grocery items are offered for sale at a supermarket on Aug. 9 in Chicago, Illinois. Photo: Scott Olson/Getty Images

The Federal Reserve's go-to measure of inflation accelerated last month, the Commerce Department said Thursday.

Why it matters: The Personal Consumption Expenditures Index, a gauge tracked by the Fed, rose 3.3% from a year ago — an uptick from the 3% in June as the U.S. lapped a period last year in which energy prices plunged.

  • The core measure, which excludes energy and food prices, increased 4.2% from a year ago — 0.1% higher than June due to quicker price increases across the services sector.
  • Among the areas that led the service sector higher in July: portfolio management and investment advice services on the back of a stronger stock market.
  • On a monthly basis, overall and core PCE rose a moderate 0.2%, matching the same pace in June.

Details: The report shows that consumers continued to increase spending. Personal consumption expenditures rose 0.8% in July, up from 0.6% in June.

  • But there were signs that Americans are dipping into savings to support spending: the personal saving rate was 3.5% in July, a notable drop from the 4.3% the prior month.

The bottom line: Inflation is below the peak reached last summer, but remains well above the 2% targeted by the Fed. Officials have acknowledged signs of cooler inflation, though they have been hesitant to declare victory.

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