Inflation Refuses to Go Back into the Bottle: Fed-Favored PCE Price Index

The Federal Reserve’s preferred inflation measure showed persistent price pressures in July, with core services continuing to drive overall inflation above the central bank’s 2% target.

The core Personal Consumption Expenditures (PCE) price index, which excludes food and energy, rose 0.25% from June, translating to a 3.0% annualized increase. Year-over-year, it climbed 3.35%, matching June’s rise—the steepest four-month stretch since October 2023. Since March 2021, the core PCE index has remained above the Fed’s target, reaching a low of 2.6% in April 2025 before trending upward again.

The broader PCE price index, which includes all goods and services, increased 0.16% month-over-month (+1.9% annualized) and 3.7% year-over-year—unchanged from June. Inflation over the past five months has been the highest since March 2023, further distancing itself from the Fed’s 2% goal.

Core services, which account for over 60% of consumer spending, rose 0.27% from June (+3.3% annualized) and 3.7% year-over-year. This category—encompassing rent, healthcare, transportation, and financial services—has proven stubbornly inflationary due to limited consumer bargaining power in many sectors.

Durable goods prices jumped 0.37% month-over-month (+4.6% annualized) and 3.4% year-over-year. While some categories saw price declines, others experienced sharp increases. Food prices edged down in July after June’s surge but remained 2.4% higher than a year ago, with notable rises in coffee, sugar, and fresh seafood prices. Egg prices continued to decline following earlier spikes.

Energy prices fell 1.5% from June, marking the second consecutive monthly drop after prior increases. However, they remained 15.3% higher than a year ago, with gasoline prices up 25% over the same period.

The data suggests inflation remains entrenched, particularly in services, complicating the Fed’s efforts to achieve its 2% target. While some price declines in food and energy offer minor relief, broader inflationary trends show little sign of easing.