US PCE Inflation Steady, Core Hits 5-Month High

The July 2025 PCE report showed headline inflation up 0.2% MoM.

The latest US data showed that the PCE price index rose 0.2% month-over-month in July 2025, easing from June’s 0.3% increase and in line with forecasts. Goods prices slipped by 0.1% after a 0.4% gain in the prior month, while services prices accelerated to 0.3% from June’s 0.2%. This divergence highlights continued deflationary trends in goods but persistent inflationary pressures in services.

Core PCE Firming Despite Energy and Food Declines

The core PCE index, which excludes food and energy and is closely monitored by the Federal Reserve, advanced 0.3% in July, matching June’s pace. Food prices fell 0.1% after rising 0.3% in June, while energy prices dropped 1.1%, reversing from the previous month’s 0.9% gain. These declines helped offset service-sector strength but failed to halt underlying inflation momentum.

Annual Figures Show Sticky Inflation

Yearly, headline PCE inflation held steady at 2.6%, exactly in line with expectations. However, core PCE inflation accelerated to 2.9% from 2.8%, marking its highest level in five months. The uptick in the core gauge underscores that price pressures remain sticky despite easing in more volatile components.

Key Takeaways for Markets

Headline PCE: +0.2% MoM (July), steady at 2.6% YoY
Core PCE: +0.3% MoM, accelerating to 2.9% YoY (5-month high)
Goods prices: -0.1% MoM, after +0.4% in June
Services prices: +0.3% MoM, after +0.2% in June
Food prices: -0.1% MoM, after +0.3% in June
Energy prices: -1.1% MoM, reversing June’s +0.9%

For the Federal Reserve, the July report confirms that inflation remains above the 2% target. While easing food and energy prices offer temporary relief, the persistence of service-sector inflation and the firming in core PCE suggest the Fed will remain cautious on the pace and timing of rate cuts.

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