In this morning’s data, the PCE Deflator increased 0.2% in July as expected and was up 2.6% 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 0.3% in July, as expected. The core rate grew 2.9% on an annual basis, which is one tenth higher than the previous month’s figure.
Meanwhile, Personal Income increased 0.4% in July, as expected, and slightly more than the previous month’s increase. Personal Spending increased 0.5% in July, as expected and above the previous month’s increase which was revised higher. The personal savings rate as a percentage of disposable income was 4.4%, close to levels seen in recent months.
Overall, both the headline and core PCE deflator increased in July as expected. The annual figure for the core rate has trended higher in recent months as tariffs are starting to roll through the supply chain to consumers. Meanwhile, both income and spending increased in July, highlighting the fact that consumers continue to spend in the current environment. As long as individuals have a job providing income, they tend to spend money in the economy. Therefore, how well the labor market and the unemployment rate hold up in the coming weeks will be a key factor for Fed policy and the economy in the weeks ahead.
In all, the yield on the 10-year US Treasury is little changed following the report and equity futures are lower as we head into the market open.
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