Fed's Preferred Measure of Inflation Expected to Cool in July

The US Federal Reserve's preferred measure of inflation, the core personal consumption expenditures price index, is expected to have cooled in July, following last month's lower than expected consumer price index figures and an unexpected decline in producer prices. Consumer price growth and producer prices eased in July largely because of lower petrol prices, and Friday's PCE report is expected to follow that inflation trend. The core PCE index, which strips out food and energy prices, is forecast to have increased 0.3 per cent from a monthly gain of 0.6 per cent in June, according to a Reuters economists poll.

Key Takeaways:

• The core personal consumption expenditures price index is expected to increase 0.3 per cent in July, following a monthly gain of 0.6 per cent in June.
• Consumer price growth and producer prices eased in July largely due to lower petrol prices.
• The Federal Reserve's preferred measure of inflation is expected to follow the trend of lower consumer prices.
• UBS analysts forecast core PCE inflation to fall to 4.5 or 4.6 per cent from an annualised rate of 4.8 per cent in June.
• The PCE rose more than expected to an annualised high of 6.8 per cent in June, dashing hopes that headline inflation peaked at 6.6 per cent in March.
• Fed governor Christopher Waller stated that monetary policy will be restrictive until there has been a "sustained reduction" in the core figure.
• The Federal Reserve raised its benchmark interest rate by 0.75 percentage points for the second consecutive month in July to tackle inflation.

Statistics:

• Core PCE index expected to increase 0.3 per cent in July.
• Monthly gain of 0.6 per cent in June.
• Annualised core PCE inflation rate of 4.8 per cent in June.
• 4.5 per cent or 4.6 per cent forecasted core PCE inflation rate in July.
• PCE rose to an annualised high of 6.8 per cent in June.

Sources:

• Reuters economists poll
• UBS analysts
• Federal Reserve
• Bloomberg News