By Gregory Heym, BHS Chief Economist and and host of Crossing The Line
In honor of Labor Day weekend, this week's Line will be a brief one.
Core Inflation in Line with Expectations
The core personal consumption expenditures price index—or core PCE to his friends—rose 0.3% last month and was 2.9% higher than a year ago. Both these figures were in line with forecasts, but the 2.9% annual growth rate was up from 2.8% in June and at its highest level since February.
Most of the articles I read on this release blamed the increase in the annual core PCE price index on the Trump tariffs. But if you look closely at the PCE report, you’ll notice that prices for services rose 0.3% last month while goods prices fell 0.1%. Last I checked, the U.S. doesn’t tariff services, so how exactly do you blame the increase on tariffs?
Perhaps the best bit of news in this report was the 0.3% increase in consumer spending last month. This was the highest monthly gain since March and shows that consumers are still spending despite their high levels of debt.
Even though the core PCE index remains almost a full percent above the Fed’s 2% target, I think this data by itself won’t be enough to stop the Fed from cutting rates next month. It would take a very strong August jobs report to do that.
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