Key Takeaways
- Inflation likely stayed too hot for comfort in July, according to economists’ expectations of the Federal Reserve’s preferred measure.
- “Core” inflation, which excludes volatile prices for food and energy, likely rose to 2.9% over the last 12 months, up from 2.8% in June.
- President Donald Trump’s far-reaching campaign of tariffs is raising prices for a wide range of products, pushing the inflation rate.
- The Fed aims to keep inflation running at a 2% annual rate, but it hasn’t for more than four years.
The Federal Reserves favorite measure of inflation likely stayed higher than the central banks target in July, according to forecasters.
A widely watched Bureau of Economic Analysis report on inflation and consumer spending is likely to show consumer prices rose 2.6% over the last 12 months in July, according to a survey of economists by Dow Jones Newswires and The Wall Street Journal. If forecasters are correct, inflation as measured by the Personal Consumption Expenditures index grew at the same rate as in June.
Core inflation, which excludes volatile prices for food and energy, is expected to have risen 2.9%, up from 2.8% in June. An uptick in that measure would be especially notable:. Officials at the Fed use PCEcore inflationto judge whether inflation is running at the central banks target of a 2% annual rate. It hasnt been under the central banks goal for more than four years, and it is once again headed in the wrong direction as tariffs push up prices on store shelves.
This weeks PCE report could be especially significant because it is the last one that Fed officials will see before Sept. 16 and 17, when the central banks policy committee will meet to decide whether to cut interest rates.
Financial markets widely anticipate the Fed will cut its benchmark interest rate from its current higher-than-usual level of 4.25% to 4.5%. A lower fed funds rate would put downward pressure on interest rates, which could boost the job market at a time when hiring has slowed dramatically. However, a rate cut could take some of the downward pressure off of inflation at a time when businesses are passing the cost of President Donald Trumps widespread hikes of import taxes on to consumers. Trump has heavily pressured the Fed to cut interest rates.
If it weren’t for all the politics, that would be another reminder that inflation is still running above the Fed’s target and not exactly crying out for a rate cut in September, Avery Shenfeld, chief economist at CIBC World Markets, wrote in a commentary.
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