U.S. Core PCE Inflation Holds Steady at 2.9% in July, Signaling Continued Moderation in Consumer Prices

August 29, 2025 | Washington, D.C.

The U.S. Bureau of Economic Analysis reported Friday that consumer prices-measured by the Personal Consumption Expenditures (PCE) Price Index-increased at a moderate pace in July, reinforcing expectations of an imminent Federal Reserve rate cut.

Headline PCE rose 0.2 percent month-over-month and 2.6 percent year-over-year, matching June’s annual pace. The core PCE Index, which strips out volatile food and energy components, climbed 0.3 percent from June and 2.9 percent from July 2024, in line with consensus forecasts.

Personal income showed healthy growth, rising by $112.3 billion (0.4 percent) in July, while disposable personal income gained $93.9 billion (0.4 percent). Consumer spending remained resilient, with outlays up $108.9 billion (0.5 percent) for the month. The personal saving rate stood at 4.4 percent, unchanged from June.

This report marks the Fed’s preferred gauge of inflation remaining near-but still above-the central bank’s 2 percent target. With core inflation holding steady and services price pressures persisting, most investors now anticipate a 25-basis-point rate reduction at the Fed’s September 17 meeting.

Looking ahead, the Fed will closely monitor whether July’s modest price increases herald a sustainable downtrend or merely a pause in the recent tariff-driven uptick in goods prices. Economists caution that sticky core services inflation could temper the pace of future rate cuts, even as headline inflation cools toward target levels.