Core inflation stagnates in July

August 31, 2015

WASHINGTON (8/31/15)--On the doorstep of a decision by the Federal Reserve on whether to raise short-term interest rates, a key indicator of inflation provided relatively little support for a rate hike Friday (MarketWatch Aug. 28).

The Bureau of Economic Analysis’ personal consumption expenditure (PCE) deflator--favored by the Federal Reserve as a marker for the rate of inflation--edged up 0.1% in July after a 0.2% climb in June.

Year-over-year, the personal consumption expenditure index climbed by 0.3%.

Ryan Sweet, Moody’s analyst, said that the report won’t sway members of the Federal Open Market Committee on its decision next month.

“This is unlikely to faze many on the Fed, as policymakers believe that a strong dollar and low commodity prices won’t last indefinitely and inflation will move toward their 2% target,” Sweet said ( Aug. 28). “Therefore, as to whether the Fed acts, some recent Fed comments seem to subtly shift the emphasis away from low inflation and toward the job market.”

Goods prices stood unchanged during July, while durable goods fell 0.2% for the third straight month and nondurable goods ticked up 0.1%.

Service prices also inched up by 0.1%, while food prices increased 0.2% after a 0.3% gain in June.

Energy goods and services prices rose only 0.1%, a notable difference from the 3.3% average gain seen for energy prices over the past three months.

“With the recent slide in global oil prices, the PCE deflator for energy will resume declining, putting temporary downward pressure on headline inflation,” Sweet said. “From a policy perspective, the Fed has historically viewed fluctuations in energy prices as transitory.”