U.S. PCE Inflation Remains at 3.7% in July; Real Consumer Spending Barely Rose

The Federal Reserve’s preferred inflation gauge showed no real improvement in July, as price pressures remained well above the central bank’s target even as consumer spending barely grew after adjusting for inflation.

The personal consumption expenditures price index rose 0.2% in July from June and was up 3.7% from a year earlier, unchanged from the annual reading in June, according to the U.S. Bureau of Economic Analysis’ “Personal Income and Outlays, July 2026” report released Aug. 26. That left inflation far above the Fed’s 2% goal.

A closely watched underlying measure, the core PCE price index, which excludes food and energy, also rose 0.2% for the month and 3.3% from a year earlier. The PCE index matters because it is the inflation measure the Fed uses for its formal 2% longer-run target.

Fed Chair Kevin M. Warsh underscored that point in his Aug. 28 speech at the Kansas City Fed’s Jackson Hole conference, saying, “There should be no misunderstanding: The Fed’s price-stability objective of 2 percent, as measured by the personal consumption expenditures (PCE) price index, is a firm, fixed target.” The Fed’s next policy meeting is scheduled for Sept. 15-16. The BEA said its next personal income and outlays report, covering August, is due Sept. 30.

The July data also pointed to a consumer sector still earning more income but getting limited real traction in spending. Disposable personal income — income after taxes — increased $125.9 billion, or 0.5%, in July. Personal consumption expenditures in current dollars, a measure of consumer spending before adjusting for inflation, increased $36.3 billion, or 0.2%.

But after accounting for inflation, real personal consumption expenditures increased just $1.3 billion, or less than 0.1%, meaning consumer spending was essentially flat. At the same time, personal saving totaled $712 billion in July, and the personal saving rate was 3.0%.

That mix suggests much of the gain in nominal spending was absorbed by still-elevated prices. The BEA said July’s increase in current-dollar spending reflected an $86.2 billion rise in services spending, partly offset by a $49.9 billion decline in goods spending.

The report reinforced a familiar pattern for policymakers and households alike: inflation is cooling only slowly, and the spending figures show consumers are not making much headway once higher prices are taken into account. With headline PCE stuck at 3.7% and core PCE at 3.3%, both readings remained above the Fed’s stated target heading into next month’s policy meeting.