July’s Personal Consumption Expenditures (PCE) report showed that inflation remained elevated but largely stable, highlighting both the progress made from earlier highs and the challenge of bringing inflation closer to the Federal Reserve’s long-term 2% target.
The PCE price index, which measures changes in the prices consumers pay for goods and services, increased 0.2% in July and 3.7% over the past year. The annual inflation rate was unchanged from June, suggesting that overall price pressures did not accelerate further. However, the monthly reading marked a reversal from June, when the PCE price index declined 0.1%. While one month of data does not establish a trend, the increase suggests that the improvement seen during June did not continue into July.
Core PCE, which excludes food and energy because those categories tend to experience larger short-term price swings, also increased 0.2% during the month and remained at 3.3% on a year-over-year basis. This measure is closely watched because it provides a clearer view of underlying inflation pressures across the broader economy. While core inflation has moderated from its earlier highs, it remains elevated, suggesting that price pressures have not yet fully returned to levels consistent with the Federal Reserve’s long-term target.
The details beneath the headline figures help explain why. Goods prices actually declined during July, driven by lower gasoline and other energy-related prices as well as a decline in furnishings and long-lasting household equipment. This provided some relief to overall inflation. Services prices, however, continued to rise, led by a notable increase in financial services and insurance, while housing costs also moved higher. The contrast between declining goods prices and rising service costs suggests that inflationary pressures have become increasingly concentrated within the services side of the economy. This creates a more balanced but still challenging inflation picture: lower goods prices are helping to offset persistent increases in services, allowing overall inflation to stabilize but making further progress toward lower underlying inflation more difficult.
This distinction is important because falling energy prices can provide relatively quick relief to headline inflation, but core PCE excludes those categories. As a result, continued increases in services carry more weight when assessing the underlying inflation trend. Many service prices also tend to adjust more gradually than energy and goods prices, making them a potentially more persistent source of inflation. The July report suggests that while lower goods and energy prices are helping to offset some price pressures, continued increases in services remain an obstacle to a more meaningful decline in core inflation.
The July report also provided some insight into the health of the consumer. Personal income increased 0.4% during the month, while consumer spending increased 0.2%. After adjusting for inflation, real consumer spending was essentially unchanged. This suggests that consumers continue to spend, but rising prices are absorbing a portion of that increase and limiting growth in actual consumption.
Overall, July’s PCE report points to an inflation environment that has stabilized but remains elevated. Inflation is well below the highs reached during the post-pandemic surge, but recent data suggests that the path back toward the Federal Reserve’s 2% target may be gradual and uneven. The key question going forward is whether persistent inflation in services begins to ease and allows the broader inflation rate to move meaningfully lower. Until then, the report reinforces the idea that inflation has improved, but the returning to a more stable price environment could take time.
Disclosure
This material is provided by Gryphon Financial Partners, LLC (“Gryphon”) for informational purposes only. It is not intended as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy, or investment product. Facts presented have been obtained from sources believed to be reliable, though Gryphon cannot guarantee their accuracy or completeness. Gryphon does not provide tax, accounting, or legal advice. Individuals should seek such guidance from qualified professionals based on their specific circumstances.