Inflation Update - August 29, 2025

WASHINGTON, Aug. 29 (Reuters) - U.S. inflation data released today showed that price pressures remain elevated, reinforcing expectations for a Federal Reserve rate cut in September.

The Commerce Department’s Personal Consumption Expenditures (PCE) price index-the Fed’s preferred inflation gauge-rose 2.6% year-over-year in July, matching June’s pace. Excluding volatile food and energy components, core PCE inflation climbed to 2.9%, the highest annual rate since February and up from June’s 2.8%.

On a month-to-month basis, the headline PCE index increased 0.2%, while core PCE ticked up 0.3%, both in line with economists’ forecasts. Federal Reserve officials view core readings as a more reliable indicator of underlying price trends, and today’s figures keep the central bank on track to consider a quarter-point rate reduction at its Sept. 16-17 meeting.

Wall Street reacted to the data with losses, as technology shares led declines on concerns that persistent inflation and incoming tariffs will continue to weigh on prices. The S&P 500 fell 0.5%, and the Dow dipped slightly after the report, though market participants still assign roughly an 87% probability of a Fed rate cut in September, according to CME Group’s FedWatch tool.

The new data suggest that tariffs imposed earlier this year are beginning to filter through to consumer prices, particularly for imported goods. President Trump’s recent end of the $800 de minimis exemption for imports also took effect today, likely increasing costs for businesses and consumers.

Meanwhile, across the Atlantic, Poland’s flash August inflation estimate slowed to 2.8%, its lowest rate in over a year and just below the 2.9% forecast. A 0.1% month-on-month price decline was driven largely by a sharp drop in fuel costs, prompting analysts to anticipate a third interest-rate cut by the National Bank of Poland when it meets next week.

Investors will now turn their attention to August’s employment and retail data later this week for further clues on the Fed’s policy path.