U.S. July PCE Inflation Rises 0.2%, Core Measures Firm at 2.9%

WASHINGTON, Aug. 29 (Reuters) - The U.S. personal consumption expenditures (PCE) price index, the Federal Reserve’s preferred gauge of inflation, rose 0.2 percent in July from the prior month, matching June’s pace and in line with economists’ forecasts. On a year-over-year basis, the headline PCE index increased 2.6 percent, unchanged from June.

Excluding the volatile food and energy components, the core PCE price index ticked up 0.3 percent for the month-slightly under consensus estimates of a 0.3 percent gain-and accelerated to a 2.9 percent annual rate, up from 2.8 percent in June. The uptick in core inflation underscores persistent underlying price pressures even as headline inflation has moderated.

Advance nowcasts from the Federal Reserve Bank of Cleveland had estimated July core PCE at roughly a 2.96 percent annual rate , closely tracking the official reading.

Financial markets showed muted reactions. Stock index futures dipped initially but recovered ground after the report, while Treasury yields held near recent levels. Traders still assign an over 80 percent probability to the Fed cutting interest rates at its September meeting, reflecting continued confidence that inflation will trend back toward the central bank’s 2 percent objective.

In global markets, the July PCE update capped a week of softer-than-expected data, but attention quickly shifted to the Labor Department’s August payrolls report due next week-seen as more immediately market-moving than the PCE figures, despite the latter’s status as the Fed’s official inflation barometer.

-Reporting by John Towfighi in New York; Editing by Andrea Ricci.