Tag: PCE

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U.S. inflation holds steady in July 2025 but Core Inflation edges higher

U.S. Inflation data

The latest inflation data for the month of July 2025 shows a mixed picture for the U.S. economy, as price pressures remain persistent despite signs of cooling in some sectors.

According to the Bureau of Economic Analysis, the headline Personal Consumption Expenditures (PCE) Price Index rose 2.6% year-over-year, unchanged from June, while the core PCE index—which excludes volatile food and energy costs—ticked up to 2.9%, marking its highest annual rate since February.

On a monthly basis, core prices increased 0.3%, in line with expectations, while consumer spending rose 0.5%, suggesting households are still resilient despite elevated costs. Personal income also climbed 0.4%, reinforcing the narrative of steady wage growth.

The Federal Reserve, which uses the PCE index as its preferred inflation gauge, faces a delicate balancing act.

With inflation still above its 2% target and labor market data showing signs of softening, markets are increasingly betting on a rate cut at the Fed’s September meeting.

Fed Chair Jerome Powell, speaking at Jackson Hole, reportedly acknowledged the risks to employment but maintained a cautious tone on policy shifts.

Investors and traders alike now see an 80% chance of a quarter-point cut, keeping all eyes on upcoming jobs data.

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U.S. GDP surges 3.0% in Q2 — but what’s driving the rebound?

U.S. GDP

After a lacklustre start to 2025, the U.S. economy posted a surprising comeback in the second quarter, with GDP rising at an annualised rate of 3.0%, according to data released today.

The sharp upswing follows a 0.5% contraction in Q1, catching analysts off-guard and fuelling speculation about the durability of the recovery.

📈 A Rebound Built on Consumers and Imports

At the heart of the turnaround lies a 1.4% increase in consumer spending, led by strong demand in sectors like healthcare, finance, and automotive sales.

But what really moved the needle was a dramatic collapse in imports — down 30.3%, reversing the Q1 surge and effectively boosting the GDP calculation.

While exports and business investment both shrank modestly, the overall picture was buoyed by domestic strength and favourable trade math.

💰 Inflation Retreats — Temporarily?

The Personal Consumption Expenditures (PCE) Price Index, a key measure of inflation, ticked up just 2.1%, down from 3.7% in the previous quarter.

The Core PCE, which excludes volatile food and energy prices, landed at 2.5%, easing pressure on the Federal Reserve to act aggressively.

Yet policymakers are watching warily. A surge in tariffs—particularly those scheduled for August—could distort prices and consumer behaviour in the months ahead.

🧠 Fed and Market Implications

The GDP bounce gives the Federal Reserve some breathing room, but not total confidence. Investment weakness and subdued export activity could signal structural fragilities beneath the headline growth.

With tariff uncertainty, election-year dynamics, and a cautious jobs market all in play, rate policy may stay frozen until the economic picture becomes clearer.

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U.S. Economy Contracts in Q1 2025 Amid Trade Policy Uncertainty

U.S. GDP

The U.S. economy shrank by 0.3% in the first quarter of 2025, marking the first contraction since early 2022.

The decline was largely driven by a surge in imports, which soared 41.3%, as businesses rushed to stockpile goods ahead of President Donald Trump’s newly imposed tariffs. Imports subtract from GDP calculations, contributing to the negative growth figure.

Despite the contraction, consumer spending remained positive, increasing 1.8%, though at a slower pace than previous quarters. Private domestic investment also saw a sharp rise of 21.9%, fueled by a 22.5% increase in equipment spending, likely influenced by tariff concerns.

The Federal Reserve faces a complex decision ahead of its upcoming policy meeting. While the negative GDP growth may push the central bank toward interest rate cuts, inflation remains a concern, with the U.S. Personal Consumption Expenditures (PCE) price index rising 3.6% for the quarter.

Markets reacted cautiously, with stock futures slipping and Treasury yields climbing. As the Trump administration navigates trade negotiations, economists warn that continued uncertainty could weigh on future growth prospects.

Next up, U.S. employment data.

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Latest U.S. producer price index inflation rose 0.2% – in line with expectations

Inflation

The latest U.S. producer price index (PPI) data indicates that wholesale inflation increased by 0.2% in December 2024, primarily driven by higher energy costs

This rise was slightly less than the 0.4% gain witnessed in November 2024. Compared to a year earlier, producer prices were up by 3.3%.

The rise in energy prices, particularly a 9.7% increase in gasoline prices, was a significant factor in the overall increase. Food prices, on the other hand, reportedly fell by 0.1% in December 2024. Excluding food and energy, core wholesale inflation was unchanged from November 2024 but up 3.5% from a year-on-year.

The PPI report is closely watched because it can offer an early look at where consumer inflation might be headed. Some components of the PPI, such as healthcare and financial services, flow into the Federal Reserve’s preferred inflation gauge, the personal consumption expenditures (PCE) index

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U.S. inflation reading of 2.4% for November 2024 is better than expected

Inflation PCE

The PCE price index, the Fed’s preferred inflation gauge, showed an increase of just 0.1% from October and a 2.4% annual rate – which was below expectations.

Excluding food and energy, core PCE also increased 0.1% monthly and was 2.8% higher from a year ago, with both readings being 0.1% off the forecast.

The personal consumption expenditures price index (PCE) – the Fed’s preferred inflation gauge, showed an increase of just 0.1% from October 2024.

The reading indicated a 2.4% inflation rate on an annual basis, still ahead of the Fed’s 2% goal, but lower than the 2.5% consensus estimate.

The markets cheered the inflation report and recovered loses after yesterdays (19th December 2024) FOMC meeting where the Fed announced it may only reduce interest rates on two more occasions in 2025 – even after a 0.25% rate reduction.

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U.S. Fed’s preferred inflation measure rises to 2.3% 

U.S. inflation

The Personal Consumption Expenditures (PCE) price index announced 27th November 2025, rose by 0.2% monthly, matching a 12-month inflation rate of 2.3%, aligning with expectations.

Core U.S. inflation recorded more robust figures, climbing 0.3% monthly and reaching an annual rate of 2.8%, but also in accordance with forecasts.

Consumer spending increased by 0.4% monthly, as expected, while personal income surged by 0.6%, exceeding the estimated 0.3%.

The Federal Reserve is now likely searching for economic clues on how to proceed at its next interest rate meeting.

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U.S. inflation rate hits 2.1% in September 2024

Inflation saw a modest rise in September 2024, edging closer to the Federal Reserve’s target, as reported by the Commerce Department on Thursday 31st October 2024.

The personal consumption expenditures (PCE) price index recorded a seasonally adjusted increase of 0.2% for the month, and the year-over-year inflation rate stood at 2.1%, aligning with predictions. The PCE index is the Fed’s preferred inflation measure, although officials monitor various other indicators as well.

The Fed aims for a 2% yearly inflation rate, a benchmark not met since February 2021.

Despite the main figure indicating that the central bank is approaching its objective, the inflation rate, excluding food and energy, was at 2.7%. This core inflation metric rose by 0.3% monthly, with the annual rate exceeding expectations by 0.1 percentage points.

This report arrives as markets strongly anticipate the Fed will reduce its benchmark short-term interest rate at the upcoming meeting. In September 2024, the Fed made a significant half-percentage-point rate cut, a rare action during an economic upturn.

Officials remain optimistic that inflation will realign with their target, yet they are wary about the labour market’s condition, even as most data suggests steady hiring and low layoff rates.

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Is it job done for the Federal Reserve now?

Federal Reserve

Recent inflation data suggests that the Federal Reserve is fast approaching its goal, if not already there – following the central bank’s significant interest rate reduction of 0.50% a few weeks ago

Both consumer and producer price indexes for September 2024 aligned with forecasts, indicating a decline in inflation towards the central bank’s 2% target.

Economists believe the Fed may have already achieved that target.

Last Friday, it was predicted that the personal consumption expenditures (PCE) price index for September 2024 would reveal an annual inflation rate of 2.04% upon its release later in the month.

Should economists’ estimates prove accurate, the figure would be rounded to 2%, aligning precisely with the Fed’s longstanding goal, marking a significant shift from the 40-year inflation peak over two years ago, which led to a series of substantial interest rate hikes.

The Fed favours the PCE as its measure of inflation, although it considers various factors in its decision-making process.

Inflation has significantly decreased over the past 18 months, and the job market has settled at a level that may represent full employment.

The U.S. economy several obstacles in reaching and sustaining the 2% inflation target

Supply chain disruptions

Persistent supply chain problems can escalate the costs of goods and services, potentially increasing inflation.

Labour market tightness

A constrained labour market may result in rising wages, which companies typically offset by raising prices for consumers.

Global economic factors

International events, like geopolitical conflicts or other countries’ economic statuses, can influence inflation via alterations in trade and commodity costs.

Consumer expectations

Anticipations of higher inflation might prompt consumers to increase spending now, which can elevate prices and lead to a self-fulfilling prophecy.

Monetary policy timing

The economy takes time to respond to monetary policy adjustments, leading to a lag between policy implementation and its effects on inflation.

These elements pose difficulties for the Federal Reserve in precisely managing inflation to meet its goal.

While managing inflation is challenging, recent data suggests that although prices haven’t fallen from their peak levels of a few years ago, the rate of increase is slowing down.

The 12-month consumer price index for all items stood at 2.4% in September, while the producer price index, indicative of wholesale inflation and a precursor to pipeline pressures, was at an annual rate of 1.8%.

The 0.50% cut in September 2024to a federal funds rate range of 4.75% to 5% was extraordinary for a growing economy, and it is anticipated that the Federal Reserve will revert to its standard quarter-point adjustment.

Excessive monetary loosening could trigger a surge in consumer demand just as it begins to reach a manageable rate.

Could we witness deflation if the 2% target is overshot?

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Is the ‘eagerly anticipated’ Fed interest rate cut (due in September 2024) – too little too late?

Federal Reserve

Is the U.S. economy already weaker than the headline data suggests and should the U.S. Federal Reserve already be easing?

In the U.S. recent data (Friday 30th August 2024) showed the personal consumption expenditures (PCE) price index, the Federal Reserve’s favored measure of inflation, ticked up 0.2% last month, as expected. The data seems to back a smaller rate cut.

The question of whether the economy is weaker than headline data suggests and if the U.S. Federal Reserve should already be easing is complex.

The gross domestic product (GDP) increased at an annual rate of 3% in Q2 of 2024, which is a positive indicator. However, the U.S. current-account deficit widened, and personal income and outlays show mixed signals with a slight increase in personal income but a higher increase in personal outlays.

Inflation remains above the Federal Reserve’s 2% target but well below the pandemic-era peak. These factors suggest that while there are positive aspects to the U.S. economy, there are also challenges that may warrant caution from the Federal Reserve.

Is the market too focused on forecasting the size of any possible upcoming cut? “The question no one has asked yet is why is the policy rate is still at 5.5% when inflation is down to almost 2.5%? It would most likely be an error to do a ‘bigger’ rate cut in this kind of environment with all the uncertainty that the U.S. economy is facing.

Jobs data trends are also an important factor and play a major role in decision making. Company performance and future performance predictions are critical to help judge policy direction.

Decisions on monetary policy easing would be based on a comprehensive analysis of all economic indicators and trends.

If the FED go BIG on a rate cut some say it could be very dangerous and spook the markets.

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U.S. rate cut looking more likely as Fed key inflation measure rose 2.5% in June 2024 over the year

U.S. Inflation

The personal consumption expenditures price index (PCE) increased 0.1% in June 2024 and was up 2.5% from a year ago, with the annual rate showing a slight decline from the prior month

Core inflation, which excludes food and energy, showed a monthly increase of 0.2% and 2.6% on the year, both also in line with expectations.

Personal income rose just 0.2%, below the 0.4% estimate. Spending increased 0.3%, meeting the forecast, while the personal savings rate decreased to 3.4%.

This PCE reading may encourage the Fed to cut rates now.

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U.S. inflation at 2.6% in May 2024 from a year ago

U.S. PCE

The core Personal Consumption Expenditures (PCE) price index witnessed a modest increase of 0.1% (seasonally adjusted) for the month and has risen 2.6% from the previous year – broadly as expected by analysts.

May 2024 experienced the lowest annual rate since March 2021, the Federal Reserve’s inflation target is 2%.

Personal income grew by 0.5% for the month, surpassing the estimated 0.4%. However, consumer spending saw a 0.2% rise, falling short of the 0.3% expected.

Data according to U.S. Bureau of Economic Analysis

Note: PCE represents Personal Consumption Expenditures. It measures consumer spending in the United States by tracking expenditures on goods and services. The PCE price index particularly tracks variations in household living costs, serving as a primary indicator of inflation.

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U.S. GDP slows to 1.6% significantly below expectations

U.S. GDP

The gross domestic product (GDP) from January to March 2024, grew at an annualised rate of 1.6%, significantly underperforming the projected 2.4%.

The personal consumption expenditures (PCE) price index, crucial for the Federal Reserve’s inflation assessments, climbed at an annualised rate of 3.4% for the quarter, marking the largest increase in a year.

Meanwhile, consumer spending rose by 2.5% during the quarter, a decrease from the 3.3% rise in the previous quarter and falling short of the 3% expectation.

U.S. GDP from Q1 2021 – Q1 2024

U.S. GDP from Q1 2021 – Q1 2024
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U.S. inflation up 0.4% in January 2024 as expected and up 2.8% year to-date but coming down ever-closer to 2% target

U.S. inflation

U.S. inflation climbed in line with expectations in January 2024, according to the preferred measure the Federal Reserve uses to make decisions on cutting interest rates.

The personal consumption expenditures (PCE) price index, excluding food and energy costs, increased 0.4% for the month and 2.8% from a year ago, as expected according to analyst’s predictions.

Headline PCE, including the volatile food and energy categories, increased 0.3% monthly and 2.4% on a 12-month basis according to the numbers released Thursday 29th February 2024 by the Commerce Department’s Bureau of Economic Analysis.

The data was released amid an unexpected jump in personal income, which rose 1%, well above the forecast for 0.3%. Spending decreased 0.1% vs. the estimate for a 0.2% gain.

U.S. inflation target is 2%.

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U.S. inflation pullback

U.S. Inflation down

Progress on U.S. inflation

Core prices for personal consumption expenditures (PCE), a preferred measure by the Federal Reserve as a longer-term inflation calculation, rose 2% for the period, while the rate was 1.7%.

On an annual basis, the PCE price index rose 2.7%, down from 5.9% a year ago, while the core figure excluding food and energy posted a 3.2% increase annually, compared with 5.1%.

Good news

Inflation falling, GDP rising, stabilizing interest rates and no recession thus far the U.S. economy is looking rock-solid despite all the negativity.