Inflation edged higher in July, according to the Federal Reserve’s preferred inflation measure, indicating that President Donald Trump’s tariffs are working their way through the U.S. economy.
The personal consumption expenditures price index showed that core inflation, which excludes food and energy costs, ran at a 2.9% seasonally adjusted annual rate, according to a Commerce Department report Friday. That was up 0.1 percentage point from the June level and the highest annual rate since February, though in line with the Dow Jones consensus forecast.
On a monthly basis, the core PCE index increased 0.3%, also in line with expectations. The all-items index showed the annual rate at 2.6% and the monthly gain at 0.2%, also hitting the consensus outlook.
The Fed uses the PCE price index as its primary forecasting tool. Though it watches both numbers, policymakers consider core inflation to be a better indicator of longer-term trends as it excludes the volatile gas and groceries figures.
Central bankers target inflation at 2%, so Friday’s report shows the economy still a distance from where the Fed feels comfortable.
