Fed inflation gauge ticks higher in July amid consumer spending surge

Updated at 8:49 am EDT

The Federal Reserve's preferred measure of U.S. inflation ticked modestly higher last month, according to data published Thursday, while spending accelerated faster than forecasts as officials continue to struggle with taming price pressures in the world's largest economy.

The July core PCE Price Index rose 4.2% from last year, a modest increase from the 4.1% pace recorded in June, accord to the Bureau of Economic Analysis. The reading matched the consensus Wall Street forecast and was near the lowest since November of 2021.

The core index was up 0.2% on the month, the BEA reported, matching both the 0.2% in June and the Wall Street consensus forecast.

The headline PCE index rose 0.2% on the month and rose 3.3% on the year, with the latter reading up from the 3% notched last month -- the lowest since March of 2021 -- but also meeting analysts' estimates. The highest level of 7.1% was printed last year.

Personal incomes rose 0.2% while real personal spending was up 0.8% from June's pace, the BEA noted, a bit higher than Wall Street forecasts of a 0.7% advance and suggests ongoing consumer strength in an economy that is growing at a 5.9% clip, according to real-time data from the Atlanta Fed.

In month/month terms, PCE #inflation (blue) +0.2% vs. +0.2% est./prior month … core (orange) also +0.2% vs. +0.2% est./prior month pic.twitter.com/dgCP5Y8Gxu— Liz Ann Sonders (@LizAnnSonders) August 31, 2023

U.S. retail sales powered 0.7% higher last month, to a collective $696.4 billion, as higher gas prices and a boost from Amazon's Prime Day event underscored the ongoing strength of the domestic consumer, the Commerce Department reported on August 15.

The closely tracked control group number, which excludes autos, building materials, office suppliers, gas station sales and tobacco and feeds into the government's GDP calculations, rose 1%, firmly ahead of analysts' estimates of a 0.2% gain.

U.S. stocks equity futures were higher in pre-market trading immediately following the data release, with futures tied to the S&P 500 indicating an opening bell gain of 8 points while those linked to the Dow Jones Industrial Average suggesting a 165 point advance. The tech-focused Nasdaq was up 2 points.

Benchmark 2-year Treasury note yields added 2 basis point to change hands at 4.886% following to the release, while 10-year paper was pegged at 4.096%.

The CME Group's FedWatch indicates an 88.5% chance that the Fed will hold rates steady at between 5.25% and 5.5% when it meets next month in Washington, but puts a 44.1% chance on a quarter point rate hike in November. 

• Action Alerts PLUS offers expert portfolio guidance to help you make informed investing decisions. Sign up now.