U.S. Core PCE Prices Held Steady in July as Consumer Spending Rises

The latest US economic data suggests that inflation will remain stable in July 2024, while consumer spending will increase, according to figures released today by the Bureau of Economic Analysis (BEA).

The core personal consumption expenditures (PCE) price index, a key inflation gauge closely watched by the Federal Reserve, rose 0.2% month-over-month in July, matching the increase seen in June. On a year-over-year basis, the core PCE price index rose 2.6% year-over-year, unchanged from the previous month’s reading.

The core personal consumption expenditures index, which includes volatile food and energy prices, rose 0.2% during the month and remained steady at 2.5% on an annual basis, indicating continued underlying inflationary pressures.

Link to the U.S. Personal Income and Spending Report for July 2024

Meanwhile, consumer spending showed signs of resilience, with personal consumption expenditures rising 0.5% in July, accelerating from a 0.3% gain in June and beating expectations for a 0.2% monthly gain. In inflation-adjusted terms, real personal consumption expenditures grew 0.4%, driven by a 0.7% increase in goods spending and a 0.2% increase in services spending.

Personal income growth was modest, rising 0.3% m/m in July compared to 0.2% m/m in June, but down from 0.4% m/m in May, suggesting that income growth is still trending down overall. Disposable personal income rose 0.3% m/m versus 0.1% m/m previously.

The personal savings rate continued its downward trend, falling to 2.9% in July from 3.1% in June, reaching its lowest level since December 2022.

US Dollar vs Major Currencies: 5 minutes

The US dollar showed a mixed reaction following the release of the personal income and spending report. Initially, the US dollar rose sharply against most major currencies, with more pronounced gains against the Japanese yen and the Swiss franc. This initial rise likely reflected market participants’ immediate response to the firm inflation data and stronger-than-expected consumer spending figures.

But the dollar’s ​​gains were short-lived and were quickly reversed. This mixed reaction suggests that while the data was initially seen as positive for the dollar, broader market themes quickly reasserted themselves. The continued strength against the yen is likely to reflect the ongoing divergence in monetary policy between the Fed and the Bank of Japan, with the latter maintaining its ultra-low interest rate policy.

The rapid reversal against other major currencies, particularly the euro and commodity-linked currencies (the Canadian, Australian and New Zealand dollars), may indicate that market participants remain cautious about the future path of the Federal Reserve’s policy. Despite steady inflation and strong consumer spending, there is continued speculation about a potential interest rate cut later in the year, which could weigh on the dollar’s ​​sustained strength.

Moreover, the generally muted reaction suggests that the data, while significant, did not set the forex world on fire. The market seemed to collectively shrug its shoulders and say, “Well, wake me up when something really exciting happens.”

Investors appear to be in a wait-and-see mode, looking to upcoming economic indicators, including the always-anticipated monthly US jobs report next week, for clearer directional signals.