Bidenflation Is On The Rise Again

The Bureau of Economic Analysis reported that the personal consumption price expenditures (PCE) index escalated by 3.3 percent in July, year-over-year. This report marks the first boost in PCE inflation since April, following June’s 3 percent increment.

From a monthly perspective, the PCE index increased by 0.2 percent from the previous month, mirroring June’s growth, and is a slight ascent from May’s 0.1 percent. When observed without rounding, there’s a subtle hike in monthly inflation: 0.213 percent in July compared to June’s 0.205 percent.

There was a 0.4% increment in service prices for the month, while goods prices decreased by 0.3. Energy and Food costs increased by 0.2 percent and 0.1 percent, respectively.

The core PCE inflation, which sidesteps food and energy charges, recorded a 4.2 percent annual rise. This rise is a marginal leap from June’s 4.1 percent. Month-over-month, core PCE surged by 0.2 percent, closely mirroring June’s numbers but slightly surpassing when unrounded.

The Federal Reserve relies on the PCE index when determining its 2 percent inflation target and for bi-monthly public projections by its members. This index is akin to the widely recognized consumer price index, but there’s variation in the spending category weights. Additionally, the PCE index encapsulates nonprofit expenditures and costs not directly borne by consumers, such as employer-covered health care. It also captures the shifting spending patterns of consumers based on price fluctuations.

On learning the inflation data, investors felt reassured, leading to a rise in futures tied to the primary indices early Thursday.

The rise in the PCE price index indicates that the Fed’s pursuit of aligning inflation with its two percent benchmark encounters significant obstacles, implying that the journey towards reduced inflation might be filled with twists and turns.

Fed Chair Jerome Powell hinted that the Federal Reserve might consider elevating interest rates to address the ongoing high inflation. While expressing the intention to approach upcoming meetings cautiously, Powell acknowledged the advancements in mitigating price surges and the potential risks from the unexpectedly robust U.S. economy.

Although Powell’s statements weren’t as assertive as he made a year prior at the Jackson Hole Economic Policy Symposium, they resonated with investors, making them anticipate an additional rate increase by the close of the year.