Annual U.S. inflation held at 3.7% in July, unchanged from June and still well above the Federal Reserve's 2% target. The steady reading keeps alive a Fed debate over whether to raise rates, with the core measure also stuck above target and a new round of Canada tariffs threatening fresh price pressure ahead.
PCE holds at 3.7%, tops forecasts
The Personal Consumption Expenditures price index rose 3.7% in the twelve months through July, unchanged from June, the Commerce Department's Bureau of Economic Analysis said Wednesday. Economists polled by Reuters had forecast 3.6%. On a month-over-month basis, PCE rose 0.2% in July, also above the 0.1% forecast, after falling 0.1% in June — the weakest monthly reading since April 2020.
A separate core measure that strips out food and energy also rose 0.2% in July, with its year-over-year rate unchanged at 3.3%. The Fed treats the PCE index, and the core rate in particular, as its most accurate inflation barometer.
Fed's rate debate stays tense
The July reading marks 65 straight months above the Fed's 2% target. PCE had shot to a three-year high of 4.1% in May after President Trump launched air strikes alongside Israel against Iran in late February, a conflict that shut in roughly a fifth of global oil supplies.
The recent pullback from that peak helped the majority of Federal Open Market Committee members vote to hold rates unchanged in July, in a range of 3.50% to 3.75%, where they have stood since December. But a growing minority of officials argue tighter policy is still needed, since inflation has run above target since February 2021.
MarketWatch reports the latest PCE data could tilt the Fed toward a hike at its next meeting, unless price growth slows significantly. The next reading, August's consumer price index, is due in three weeks and could prove pivotal to that decision.
Fresh tariffs add to the pressure
New tariff-driven pressure is likely coming. Trade negotiations between the U.S. and Canada, its No. 2 trading partner, fell apart on Friday, triggering new levies on $20 billion of Canadian goods imports. Washington and Ottawa have each since announced additional retaliatory measures set to take effect in coming months unless a deal is reached.
The Bureau of Economic Analysis also left its second-quarter GDP estimate unchanged at 1.5% annualized growth. The Dow Jones Industrial Average and S&P 500 were set to open mixed in Wednesday trading.
Sources: Reuters, MarketWatch
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