US Inflation Keeps Economy Under Pressure

US inflation remained elevated in July, adding pressure to an economy already balancing resilient household demand against restrictive borrowing costs. The Federal Reserve’s preferred inflation measure showed underlying price growth still running well above its 2% target, limiting confidence that price stability is close.

The personal consumption expenditures price index rose 0.2% during July and 3.7% from a year earlier, both slightly above economists’ expectations. Core PCE, which excludes food and energy, also increased 0.2% monthly and 3.3% annually, matching forecasts. Policymakers generally view the core measure as a clearer indicator of longer-term inflation trends.

Consumer finances remained relatively firm. Personal income increased 0.4% during the month, while spending rose 0.2%, both stronger than expected. Goods prices declined 0.1%, helped by a 2.7% fall in gasoline and other energy-related goods and a 0.9% drop in furnishings and durable household equipment. Services prices moved in the opposite direction, rising 0.3%, with financial services, insurance and housing contributing to the increase.

The figures complicate the economic outlook for the Federal Reserve. Inflation has remained above target despite softer monthly readings during the summer, while government bond yields have risen amid concerns over inflation, federal debt and deficits. Markets currently see limited probability of an interest-rate move at the Fed’s September meeting, with greater attention turning towards December.

For the wider economy, persistent inflation raises the risk that borrowing costs remain elevated for longer. Stronger income provides some support for consumers, but slower spending suggests households are becoming more cautious. The balance between sticky prices, consumer resilience and higher financing costs will remain central to the US economic outlook.