The impact of tariffs is still controllable! The core PCE price index in the U.S. in July rose by 2.9% year-on-year, in line with expectations but marking the largest increase in four months

In July, U.S. consumer spending recorded the largest increase in four months, indicating that despite stubborn inflation, demand remains resilient.

The U.S. Bureau of Economic Analysis released data on Friday showing that the July PCE price index rose 2.6% year-on-year, in line with expectations and the previous value; month-on-month, it was flat at 0.2%, down from the previous value of 0.3%.

The Federal Reserve's favorite inflation indicator—the core PCE price index—rose 2.9% year-on-year in July, matching expectations and up from the previous value of 2.8%, marking the highest level since February of this year. Month-on-month, it was flat at 0.3%, in line with expectations and the previous value.

In July, the super core PCE (services, excluding housing) rose 3.32% year-on-year, the same level as in July 2024.

After the data release, U.S. stock index futures and U.S. Treasury bonds reduced their losses, while the dollar continued to strengthen. Traders still expect the Federal Reserve to cut interest rates at the meeting on September 16-17.

Service Sector Inflation Rises, Tariff Impact Remains Manageable

Latest data shows a rebound in service sector prices, which may exacerbate concerns about rising inflation as President Trump's tariff policies impact the economy. Currently, Americans are still spending, but it remains unclear how long this momentum can last against the backdrop of rising prices and a weak job market.

Federal Reserve Chairman Jerome Powell spoke last week at the annual Jackson Hole meeting, cautiously opening the door to a rate cut next month amid rising risks in the job market, but he noted that the impact of tariffs on prices is "now clearly visible."

However, before that meeting, policymakers will receive more reports on inflation and the labor market.

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