In this morning’s data, the PCE Deflator increased 0.2% in July, higher than expected, and was up 3.7% on an annual basis. The Core PCE Deflator, which excludes food and energy prices and is closely monitored by the Federal Reserve for policy decisions, increased 0.2% in July, as expected, and grew 3.3% on an annual basis, which is the same as the previous month’s annual increase.
In addition, Personal Income increased 0.4% in July, higher than expected, and higher than the previous month’s increase. Personal Spending increased 0.2% in July, also higher than expected, and one-tenth less than the increase in the previous month. The personal savings rate, as a percentage of disposable income, was 3.0%, above the previous month’s measure. Meanwhile, the second estimate of annualized GDP growth for the second quarter of 2026 was 1.5%, as expected, and the same as the previous estimate.
Overall, the headline PCE deflator increased more than expected in July, as higher prices for financial services and health care were offset by lower prices for gasoline and energy. Core rates increased as expected, and the annual increase is still well above the Fed’s stated 2.0% target. Personal income in July increased more than expected and was above the increase in personal spending, resulting in a slight increase in the savings rate. However, consumers may still be under pressure given elevated inflation levels. The second estimate of economic growth for the second quarter of 2026 indicates a subdued economic environment, despite strong results from second-quarter earnings reports.
The Federal Reserve is meeting in Jackson Hole this week at their annual Economic Policy Symposium. How new Fed Chair Kevin Warsh addresses their policy, considering changes in forward guidance, long-term bond yields moving higher, and the outlook for inflation, will be closely watched. Amidst this policy, the ability of the consumer to maintain spending is key for the economy and markets in the coming weeks.
In all, the yield on the 10-year US Treasury ticks higher following the report and equity futures are mixed as we head into the market open.
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