Inflation Remains Steady, Setting Stage for Potential Rate Cut in September

The Federal Reserve's preferred measure of inflation, the Personal Consumption Expenditures price index, remained steady in July, keeping the central bank on track to lower interest rates at its next meeting in September. Consumer prices rose 0.2 percent in July and were up 2.6 percent from a year earlier, while core prices, which exclude volatile food and energy costs, rose 0.3 percent from the previous month and were up 2.9 percent compared to the same time last year. The latest data suggests that President Trump's tariffs have started to push up consumer prices, but the impact is still uncertain, and it's unclear whether this will lead to a temporary burst in inflation or something more persistent.

Key Takeaways:

• The Federal Reserve's preferred measure of inflation, the Personal Consumption Expenditures price index, remained steady in July, at 2.0 percent.
• Consumer prices rose 0.2 percent in July and were up 2.6 percent from a year earlier, according to the Commerce Department.
• Core prices, which exclude volatile food and energy costs, rose 0.3 percent from the previous month and were up 2.9 percent compared to the same time last year.
• The impact of President Trump's tariffs on consumer prices is still uncertain, but it's clear that prices for products highly exposed to the levies, such as furniture, appliances, and recreation goods, have started to rise.
• Many companies have been able to hold off on raising prices for customers because they built up large inventories before the tariffs went into effect, but as those stockpiles dwindle, chief executives are left with a difficult decision to either absorb the higher costs or pass along those added expenses to their customers.
• Spending rose 0.5 percent in July, suggesting that the pullback in demand feared by some economists has not yet happened in a significant enough way.
• If companies whose profit margins have been squeezed by tariffs start to lay off workers, discretionary spending is likely to take an immediate hit.
• Monthly jobs growth has slowed sharply this summer, but the unemployment rate has stayed relatively stable around 4.2 percent.

Statistics:

• Consumer prices rose 0.2 percent in July and were up 2.6 percent from a year earlier.
• Core prices rose 0.3 percent from the previous month and were up 2.9 percent compared to the same time last year.
• Spending rose 0.5 percent in July.
• Monthly jobs growth has slowed sharply this summer.
• Unemployment rate has stayed relatively stable around 4.2 percent.

Sources:

• Commerce Department
• The New York Times
• Federal Reserve