In June, the Personal Consumption Expenditures (PCE) price index in the United States increased by 2.6% year-over-year, surpassing economists’ expectations. This exceeded the preferred inflation gauge of the Federal Reserve, indicating that the central bank is likely to continue monitoring the potential impact of tariff-induced inflation on consumers.
The data released by the U.S. Department of Commerce on Thursday, July 31st, revealed that the PCE price index for June rose by 0.3% compared to the previous month and increased by 2.6% compared to the same period last year. This year-over-year increase exceeded the 2.5% expected by economists surveyed by the London Stock Exchange Group, marking the highest level since February. These figures also exceeded the 0.1% month-on-month increase and 2.3% year-on-year increase recorded in May.
The core PCE price index, which excludes volatile food and energy prices and is a key inflation measure for the Federal Reserve, increased by 0.3% month-on-month and 2.8% year-on-year in June, surpassing expectations. These figures slightly rose compared to the previous month, with the core PCE price index in May showing a 0.2% month-on-month increase and a 2.7% year-on-year increase.
Economists had previously anticipated a slight uptick in the PCE price index, partly due to rising gasoline prices after a period of decline earlier in the year. Another factor contributing to this increase is that businesses have shifted tariff-related costs onto consumers, resulting in higher prices for goods.
Economists had already predicted that tariffs would lead to price hikes. The report from the Commerce Department comprehensively illustrates price changes, as well as the situation of household income, expenditure, and savings.
Analysts from the investment management giant The Vanguard Group wrote in a commentary that core goods prices should reflect significant growth due to tariffs, particularly in tariff-sensitive categories such as home goods and equipment, leisure products, clothing, and auto parts.
Recently, another widely used measure of prices, the Consumer Price Index (CPI), has also been on the rise. The CPI increased by 2.7% year-over-year in June, higher than the 2.4% recorded in May. Industries sensitive to tariffs such as clothing, electronics, and home goods have experienced price increases.
The PCE price index is the Federal Reserve’s preferred measure of inflation. Federal Reserve Chair Jerome Powell indicated earlier this month that tariffs are a key reason why the Fed is not considering an interest rate cut at the moment.
After the Federal Open Market Committee convened for a policy meeting this week, the U.S. central bank decided to maintain the policy interest rate in the range of 4.25% to 4.50%. However, during the meeting on Wednesday, July 30th, two Fed officials dissented against keeping the rates unchanged.