Key inflation measure rises as incomes decelerated in July

Prices bucked up in July in a key inflation gauge watched by the Federal Reserve as the central bank weighs the possibility of more interest rate hikes.

The personal consumption expenditures (PCE) price index rose 0.2 percent in July, the Commerce Department reported Thursday. It moved up to 3.3 percent ahead of where it was a year ago, up from 3 percent in June.

Annual “core” PCE, which excludes the more volatile categories of food and energy prices, moved up to 4.2 percent in July from 4.1 percent in June.

The upward move in the PCE index comes after another important price measurement, the Consumer Price Index (CPI), rose for the first time this year in July. Prices had been steadily declining since last summer.

Markets are currently not expecting another interest rate hike by the Federal Reserve.

A prediction algorithm by financial company CME puts the chances of the Fed pausing at its next meeting at 88.5 percent.

The advance in the CPI was primarily driven by housing costs.

Housing costs are directly correlated with the Fed’s interest rate hikes. As the central bank increases borrowing costs, mortgage rates rise, and housing prices and rents have refused to buckle.

As prices are going up, the PCE showed income levels for Americans failing to keep up.

Personal incomes advanced 0.2 percent in July, down from 0.3 percent in June and 0.4 percent in May. But disposable income was flat in current dollars and down 0.2 percent after adjusting for inflation.

These falling income levels are being matched by soaring credit card debt levels.

Credit card and revolving consumer debt is back up to its pre-pandemic trend at more than $1 trillion.