The US Federal Reserve鈥檚 preferred inflation gauge held steady in July but a measure of underlying price increases ticked up, government data showed Friday, as president Donald Trump鈥檚 tariffs ripple through the economy.
The data, released by the Department of Commerce, is closely monitored for signs of how fresh and wide-ranging tariffs imposed this year are filtering through to consumers in the world鈥檚 biggest economy.
For now, analysts note that the inflation impact has been limited as businesses hold back on passing down higher import costs fully.
The personal consumption expenditures (PCE) price index rose 2.6 per cent in July from a year ago. This was the same rate as in June, the Commerce Department said.
Excluding the volatile food and energy segments, the PCE price index was up 2.9 per cent, accelerating from June鈥檚 2.8 per cent rate.
Both figures are notably higher than the Fed鈥檚 long-run two-per cent inflation target, although they do not indicate a sharp surge in costs.
鈥業nflation continues to nudge higher, but it鈥檚 clear that companies were not passing along most of the tariff price increases this summer,鈥� said Heather Long, chief economist at the Navy Federal Credit Union.
She noted that the 2.6 per cent figure was in line with economists鈥� expectations.
鈥楾he reality is the middle class does not have much extra room in their budgets to absorb higher costs,鈥� she said in a note.
This means that brands have to be careful when increasing costs: 鈥楽maller price increases are much easier for middle-class households to absorb.鈥�
Meanwhile, consumer spending rose 0.5 per cent from a month ago, while personal income picked up at a 0.4-per cent pace.
鈥楻eal consumption rose in July at the briskest pace since March,鈥� said Samuel Tombs, chief US economist at Pantheon Macroeconomics.
But he noted that the trend remains 鈥榗onsiderably weaker than last year.鈥�
鈥楥onsumers maintained a firm pace of spending but the uptick in inflation is curbing the rate of household outlays, especially on discretionary goods and services,鈥� said Nationwide chief economist Kathy Bostjancic.
She expects consumers to become more selective in spending over the coming months, as tariffs increasingly get passed through to consumer costs.
The US central bank has been trying to balance inflation risks and a cooling labour market as it mulls the right time for the next interest rate cut.
Since its last reduction in December, the Fed has held interest rates steady this year. But Fed chair Jerome Powell has opened the door to lower levels in the future.
CME Group鈥檚 FedWatch Tool shows that the market sees an 87.2-per cent chance that policymakers will make a 25 basis point cut at their next meeting in September.
