US July PCE Rises 3.7%, Slightly Above Forecast

The personal consumption expenditures price index, an inflation gauge closely watched by the Federal Reserve, rose slightly more than expected in July.

The U.S. Commerce Department said on August 26 that the July PCE price index rose 3.7% from a year earlier. That matched June’s 3.7% increase but exceeded the market forecast of 3.6%. The index rose 0.2% from the previous month, returning to an increase after falling 0.1% in June. The result was attributed to relatively modest declines in energy and gasoline prices in the July consumer price index, which fell 1.5% and 2.9%, respectively.

Core PCE, which excludes the volatile food and energy categories, matched market expectations. It rose 3.3% from a year earlier and 0.2% from the previous month.

After the stronger-than-expected inflation reading, financial markets increased bets on additional Fed tightening. CME FedWatch showed the probability of the Fed holding rates steady in September fell to 59.6% immediately after the PCE release from 63.6% just before it. The probability of a rate increase rose to 40.4% from 36.4%.

U.S. economic growth also slowed. Second-quarter gross domestic product growth, released the same day, was estimated at an annualized 1.5% from the previous quarter.

Son Ju-hyung, Hankyung.com reporter handbro@hankyung.com