The Federal Reserve’s preferred measure of inflation held steady at 2.5 per cent in the 12 months to July, according to data released on Friday that could pave the way for the Fed to start cutting interest rates next month.
The Fed’s target for the headline personal consumption expenditure (PCE) index is 2 per cent annually. Core PCE, which strips out volatile food and energy costs, came in at 2.6 per cent, below expectations of 2.7 per cent.
The figures from the Commerce Department came after Fed chairman Jay Powell said last week that it was “time” to start cutting interest rates as inflation fell and the labour market slowed.
The core PCE data, which is expected after yesterday’s strong US growth data, plays an important role in the Fed’s assessment of inflation.
In the US, personal spending rose by 0.5% in July, in line with expectations, and personal income rose by 0.3%, slightly above expectations of 0.2%.
Core PCE measures the rate of inflation faced by consumers when purchasing goods and services, excluding food and energy prices.
US government bond prices fell slightly following the release of the data. The yield on the two-year Treasury note, which rises when prices fall, rose 0.03 percentage point during the day to 3.92%. The S&P 500 was up 0.7% shortly after the opening bell on Wall Street.
Eurozone inflation fell sharply in August to 2.2 per cent, the lowest level in three years.
The rate reinforced expectations that the European Central Bank (ECB) will cut interest rates next month.
Friday’s preliminary figure was in line with the 2.2 per cent forecast in a Reuters poll and below last month’s rate of 2.6 per cent.
The Eurostat data came after Germany and Spain this week reported sharper-than-expected declines in August.
France also reported on Friday that inflation fell to 2.2 per cent, but the figure was higher than expected and some economists attributed the drop to price pressures from the Paris Olympics.
