The increase in the so-called personal consumption price index exceeded Wall Street forecasts. Economists had predicted a rise of 0.9%. A narrower measure of inflation that omits volatile food and energy costs, known as core PCE, rose 0.6 percent. That was above Wall Street forecasts of 0.5%. The rate of inflation last year rose to 6.8% from 6.3% the previous month — the highest rate since January 1982. Core inflation rose to 4.8% from 4.7% in the 12 months to June. It had hit a 40-year high of 5.3% in February. The Federal Reserve views the PCE index as the best barometer for inflation trends. Big picture: The economy is slowing in response to rising inflation, higher interest rates and the end of government pandemic relief. If it slows enough, the reduction in demand will reverse the rise in prices and help reduce inflation. But the Fed’s new aggressive rate hike strategy also threatens to plunge the economy into its second recession in three years, potentially plunging the US into another period of “stall inflation” – the combination of high inflation and weak economic growth. Key Details: The general increase in the PCE price index was partly driven by strong oil and natural gas prices in June. The good news? Oil prices fell sharply in July to give consumers some relief, although prices are still much higher than a year ago. Core PCE, meanwhile, suggests that inflation in some parts of the economy is easing, but it will take at least several months of progress to convince the Fed. Unlike its better-known cousin, the consumer price index, the PCE gauge takes into account how consumers change their behavior in response to higher prices. They could substitute cheaper goods like ground beef with more expensive ones like ribeye to lower their costs, for example. The CPI rose to an annual rate of 9.1% in June, the highest level in nearly 41 years. Market reaction: The Dow Jones Industrial Average DJIA, +1.03% and the S&P 500 SPX, +1.21% were poised to open higher in Friday trading.
