Fed’s Preferred Inflation Gauge Holds Steady in July
Strong consumer spending helps offset drop in energy prices
Personal consumption expenditures index rose 0.1% in July, matching expectations
The Federal Reserve's preferred measure of inflation held steady in July, as strong consumer spending helped offset a drop in energy prices.
The personal consumption expenditures (PCE) index rose 0.1% in July, matching expectations. The core PCE index, which excludes volatile food and energy prices, also rose 0.1%.
On a year-over-year basis, the PCE index is up 4.2%, while the core PCE index is up 4.6%. Both measures are above the Fed's target of 2% inflation.
What is the PCE index?
The PCE index is a measure of inflation that is calculated by the Bureau of Economic Analysis (BEA)
It measures the change in prices for goods and services purchased by consumers.
The PCE index is the Fed's preferred measure of inflation because it is a more comprehensive measure than the consumer price index (CPI).
The CPI only measures the change in prices for goods and services purchased by urban consumers, while the PCE index measures the change in prices for goods and services purchased by all consumers, including rural consumers.
Why is the PCE index important?
The PCE index is important because it is used by the Fed to make decisions about interest rates
When inflation is too high, the Fed raises interest rates to slow down economic growth.
When inflation is too low, the Fed lowers interest rates to stimulate economic growth.
What does the latest PCE index report mean for interest rates?
The latest PCE index report suggests that inflation is still too high
This means that the Fed is likely to continue raising interest rates in the coming months.
Higher interest rates will make it more expensive for businesses to borrow money and invest, which will slow down economic growth.
What can consumers do to prepare for higher interest rates?
Consumers can prepare for higher interest rates by:
- Saving more money
- Paying down debt
- Locking in low interest rates on loans
Consumers should also be aware that higher interest rates will make it more expensive to borrow money, so they should be careful not to take on too much debt.