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U.S. Inflation Update – July 2025 (PCE Price Index)

On August 29, 2025, the U.S. Bureau of Economic Analysis (BEA) released the Personal Consumption Expenditures (PCE) Price Index data for July. As the Federal Reserve’s preferred inflation gauge, the PCE provides critical insight into the trajectory of prices across the U.S. economy.

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Headline PCE Inflation

• Year-over-Year: +2.6% (slightly higher than June’s 2.5%)

• Month-over-Month: +0.2%

This modest uptick suggests that while overall inflation continues to moderate compared to the peaks of 2022–2023, progress toward the Fed’s 2% target has slowed.

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Core PCE Inflation (Excluding Food and Energy)

• Year-over-Year: +2.9% (up from 2.8% in June)

• Month-over-Month: +0.3%

Core PCE is particularly important because it strips out volatile categories like food and energy, offering a clearer view of underlying price dynamics. The rise to 2.9% underscores that persistent inflation pressures remain embedded in the economy.

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Why This Matters

1. Fed’s Policy Dilemma:
   With both headline and core inflation edging higher, the Federal Reserve may be reluctant to move quickly on rate cuts. The data reinforces the case for patience.

2. The “Last Mile” Challenge:
   Inflation has come down dramatically from over 5% in early 2023, but closing the gap from around 3% to 2% is proving difficult. Sticky services inflation and housing-related costs continue to weigh heavily.

3. Market Implications:
   Investors are recalibrating expectations. A slower pace of rate cuts—or a longer “hold” period—could influence equities, bond yields, and currency markets through the remainder of 2025.

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Takeaway

The July 2025 PCE report signals that disinflation has not stalled, but it has slowed. Core inflation’s resilience highlights that the Fed’s 2% target remains out of reach for now.

As we move into the fall, the big question is whether this is a temporary blip—or a sign that U.S. inflation is settling into a plateau closer to 3%. Either way, monetary policymakers face a delicate balancing act between fighting inflation and supporting growth.

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👉 What do you think? Should the Fed maintain its restrictive stance until inflation is firmly at 2%, or is it time to prioritize economic growth?

#Economy #Inflation #FederalReserve #Markets #PCE