Consumer inflation is on the rise again.
The personal consumption price expenditures (PCE) price index rose 3.3 percent in July compared with 12 months earlier, the Bureau of Economic Analysis said Thursday. This was the first acceleration in PCE inflation since April and follows the three percent reading in June.
The PCE price index climbed 0.2 percent compared with a month earlier, matching the June gain and up from May’s 0.1 percent. Before rounding, month-to-month inflation actually edged up a bit, rising 0.213 percent compared with June’s 0.205 percent.
Services prices rose 0.4 percent for the month and goods prices declined by 0.3 percent. Food prices climbed 0.2 percent. Energy prices rose 0.1 percent.
Core PCE inflation, which excludes food and energy costs, rose 4.2 percent on an annual basis, up from June’s 4.1 percent reading. On a monthly basis, core PCE prices were up 0.2 percent, matching the June figure after rounding and slightly exceeding it prior to rounding.
The Federal Reserve uses the PCE price index in setting its two percent target for inflation and in the public forecasts of Fed members that get released every other meeting. It is similar to the more familiar consumer price index, although the weights assigned to categories of spending differ. The PCE index also includes spending by nonprofits and prices not directly paid by consumers, such as health care costs paid by employers. The PCE index also reflects consumers switching around their spending priorities as relative prices change.
Investors breathed a sigh of relief that inflation had not accelerated more, sending futures linked to the major indexes higher on Thursday before the opening bell.
The increase in the PCE price index suggests that the Fed’s efforts to bring inflation down to its two percent target still faces major challenges and that the road to lower inflation will not be smooth or straight.