US Core PCE Inflation Holds Steady at Five-Month High in July

August 29, 2025 - Reuters The U.S. Commerce Department reported Friday that the Federal Reserve’s preferred gauge of underlying inflation-the Personal Consumption Expenditures (PCE) price index excluding food and energy-rose 0.3 percent in July, matching economists’ forecasts and marking a five-month high. Over the past 12 months, core PCE inflation accelerated to 2.9 percent, up from 2.8 percent in June and the strongest pace since February.

Headline PCE inflation, which includes volatile food and energy prices, increased 0.2 percent month-on-month and 2.6 percent year-on-year, identical to June’s readings.

Market reaction was muted. S&P 500 futures trimmed losses as Treasury yields softened; the 10-year yield dipped slightly after rising earlier in the session, and the dollar index largely held its gains amid the data release.

“After two months of softer figures, spending on durable goods rebounded in July, driven mainly by auto purchases,” noted Michael Arorizio, head of rates strategy at Manife Investment Management. “The PCE report was in line with expectations, but persistent core inflation near 3 percent could complicate the Fed’s decision on rate cuts next month”.

With inflation still above the Fed’s 2 percent target and the jobs report due next week, policymakers face a delicate balance at the September 16-17 meeting. While many investors anticipate a 25-basis-point cut, today’s core PCE data may prompt officials to proceed cautiously.