U.S. inflation pressures showed mixed signals in July, with Truflation projecting a 0.2% month-over-month increase in the core Personal Consumption Expenditures Price Index and a 0.19% rise in the headline measure. The forecast, released ahead of the Bureau of Economic Analysis’ July PCE data due Wednesday, suggests annual core PCE will hold at 3.3%, while headline inflation remains steady at 3.7% year-over-year.
The outlook comes as retail sales unexpectedly declined 0.6% in July, marking the first drop in nine months and signaling weakening consumer demand. Utilities costs surged 7.64% year-over-year, the highest since mid-2024, while transportation services rose 12.25% annually. Gasoline prices, however, fell 3.36% on the month, easing one pressure point on household budgets.
Truflation’s analysis indicates the Federal Reserve is unlikely to raise interest rates at its September meeting, with market pricing reflecting a 65% probability of a hold. Probabilities for hikes in October and December stand at roughly 40% and 45%, respectively, according to derivatives pricing. The firm’s monthly report reiterated its view that the Fed will refrain from tightening policy for the remainder of 2026.
Persistent wage growth, running between 4.0% and 4.5%, continues to complicate the inflation outlook, while geopolitical risks in the Middle East and tariffs are cited as recurring inflationary pressures. AI-driven electricity demand is also flagged as a growing factor in utility costs. Major retailers including Walmart and Lowe’s reported their slowest sales growth in six years, reflecting caution among middle- and lower-income households amid sustained inflation and higher fuel expenses.
Truflation’s assessment aligns with broader concerns over inflation’s stickiness, despite recent easing in some components. The firm’s projections underscore the challenges facing policymakers as they weigh the balance between inflation control and economic growth.
