U.S. inflation remained elevated in July, with the Federal Reserve's preferred measure holding at 3.7% on an annual basis, underscoring persistent price pressures despite recent policy tightening. The Personal Consumption Expenditures Price Index, excluding volatile food and energy components, matched June's reading and exceeded economist expectations of 3.6%, according to a Reuters poll.
The month-over-month increase of 0.2% in July followed a 0.1% decline in June, marking the weakest monthly reading since April 2020. The PCE index has now exceeded the Fed's 2% target for 65 consecutive months, with the gauge peaking at 7.2% in June 2022 and a recent high of 4.1% in May. The Commerce Department's Bureau of Economic Analysis confirmed second-quarter GDP growth at an annualized rate of 1.5%, leaving the estimate unchanged from its prior assessment.
The Fed has maintained its benchmark interest rate in a 3.50% to 3.75% range since December, with the Federal Open Market Committee opting to hold rates steady at its July meeting. Inflation has remained above target since February 2021, complicating the central bank's efforts to balance price stability with economic growth.
Geopolitical tensions and trade policy continue to influence inflation dynamics. Late February airstrikes by the U.S. and Israel against Iran disrupted roughly a fifth of global oil supplies, contributing to upward pressure on energy prices. Meanwhile, trade negotiations between the U.S. and Canada collapsed last week, resulting in new tariffs on $20 billion of Canadian goods. Both countries have announced retaliatory measures set to take effect in the coming months unless a resolution is reached.
