Minneapolis (CNN Business) – The Fed’s preferred inflation gauge showed that increases took a breather last month as energy prices continued to fall from record levels. However, Federal Reserve Chairman Jerome Powell mentioned “pain” twice when discussing the future of the US economy.
The personal consumption expenditures price index rose 6.3% for the year ending in July, down from a 40-year high of 6.8% recorded in June, according to data from the Bureau of Economic Analysis (BEA). On a monthly basis, the PCE price index fell 0.1%.
This drop was largely expected, as July’s CPI, another important indicator of inflation, showed a slowdown in price increases. The most significant change: Energy prices fell sharply last month.
The latest data from the BEA reflects this decline. In June, energy prices rose 43.4% compared to the same period last year. Last month, that annual increase was 34.4%.
Despite this drop, prices are still high, said Scott Brave, an economist who specializes in consumer spending at Morning Consult.
“US consumers received a welcome reprieve from the stinging inflation in July with significantly lower gasoline prices,” it said in a statement. “But at more than 6%, inflation is still too high to provide lasting relief.”
Excluding the more volatile food and energy prices, the core PCE index rose 4.6% from a year ago.
Powell warns of ‘some pain’ for families and businesses
Investors who had expected Federal Reserve Chairman Jerome Powell’s dovish comments on Friday were disappointed. Instead, Powell mentioned “pain” twice in predicting the future of the US economy.
“While high interest rates, slow growth, and weak labor market conditions will bring inflation down, they will cause some pain for households and businesses,” Powell said in his annual Jackson policy address.
“These are the unfortunate costs of lowering inflation. But failure to restore price stability will mean much more pain.”
Powell hinted that the Fed will continue its historic pace of rate hikes for the foreseeable future until it can return inflation to normal levels.
“We are taking strong and rapid measures to cool demand, so that it is better in line with supply, and to keep inflation expectations steady,” he said. “We will continue to do so until we are sure the job is done.”