The Fed’s Preferred Inflation Gauge Shows Core Prices Rose 3.3% Annually in July.

Prices consumers pay for a variety of goods and services rose slightly in July, according to the Federal Reserve’s main inflation gauge. The personal consumption expenditures price index, which the Fed uses as its preferred forecasting tool, increased a seasonally adjusted 0.2% for the month, putting the annual inflation rate at 3.7%, the Commerce Department reported Wednesday. Both were 0.1 percentage point above the Dow Jones consensus. But stripping out volatile food and energy costs, core PCE posted respective gains of 0.2% and 3.3%, in line with forecasts. While the Fed considers both measures, policymakers generally see core inflation as the better measure of longer-term trends. The report also showed that personal income rose 0.4% while spending increased 0.2%, both stronger than expected. Goods prices actually declined on the month, off 0.1%, driven by a 2.7% decrease in gasoline and other energy-related goods and a 0.9% drop in furnishings and long-lasting household equipment. Services prices rose 0.3%, pushed by a 1.2% increase in financial services and insurance as well as a 0.3% gain in housing. Stock market futures pulled back a bit after the report while Treasury yields were higher. The report comes with Fed officials weighing their next policy move as inflation, despite generally soft monthly readings this summer, still well above the central bank’s 2% goal. With the rate-setting Federal Open Market Committee not meeting formally in August, officials have a bit of a respite before making a decision at their next gathering on Sept. 15-16. Markets are pricing in only about a 1-in-3 probability of a move then, with the best chance for a rate hike coming in December. Though the FOMC doesn’t meet, Fed officials this week.

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