US PCE inflation data steadied as personal spending rose

US inflation remained sticky in July, according to the latest report by the Commerce Department. The closely watched personal consumption expenditure (PCE) data rose by 0.2% in July, translating to a year-on-year gain of 3.3%. This increase was in line with what most analysts were expecting.

Core PCE, on the other hand, rose by 0.2% MoM, leading to a year-on-year growth of 4.2%. Again, this is in line with expectations. These numbers are still significantly above the Fed’s target of 2.0%.

PCE numbers are watched closely in Wall Street since they are the Fed’s favourite inflation gauge. These numbers came a week after Jerome Powell lamented that inflation remains stubbornly high. As a result, he pledged to continue hiking rates in the coming months.

Analysts now believe that the Fed will hold interest rates steady in the upcoming meeting in September. Besides, a series of numbers published this week showed that the American economy was slowing.

For example, consumer confidence dropped in August while the economy expanded by 2.1% in Q2, down from the previous estimate of 2.4%. A report by ADP showed that the economy added just 177k jobs in August.

On a positive side, personal consumption, the biggest part of the GDP, rose by 0.6% even as personal income dropped to 0.2%. 

Looking ahead, the next data to watch will be the upcoming US non-farm payrolls (NFP) data. Economists polled by Reuters expect the data to show that the economy added 170k jobs in August while the unemployment rate remained at 3.5%. Average hourly earnings rose by 4.4% on a YoY basis.