The latest report shows the Federal Reserve’s preferred inflation gauge remains sticky in July, complicating the Fed’s path to its long-term 2% target. Meanwhile, consumer spending remains resilient but is showing signs of slowing, with real consumer spending unchanged in July. Households are pulling back on spending amid persistent inflation.
The headline Personal Consumption Expenditure (PCE) Price Index increased 3.7% in July from a year ago, unchanged from last month, according to the Commerce Department’s Bureau of Economic Analysis. The “core” PCE price index, which excludes food and energy, rose 3.3% over the past twelve months. Core PCE has held at 3.3% since the start of the Iran conflict, with the exception of a three-year high of 3.5% in May. This suggests inflation pressure persists even as energy prices slightly eased.
With elevated inflation, consumer spending slowed as the cushion from larger tax refunds cushion faded. Consumer spending rose 0.2% in July, and real spending, adjusted to remove inflation, remained flat.
Meanwhile, personal income rose 0.4% in July. This growth was led by increases in compensation, government social benefits, and personal income receipts on assets. Real disposable income—income adjusted for taxes and inflation—was up 0.4% in July. On a year-over-year basis, personal income was 3.7% higher, and real (inflation-adjusted) disposable income was up 0.5%.
With income growth outpacing spending growth, the personal saving rate edged up to 3.0% in July, the highest level since April. This marks the first monthly increase since January.
