U.S. July PCE rises 3.7%, topping forecasts as service prices weigh

[Financial News, New York = Reporter Lee Byung-chul]U.S. inflation edged up slightly. Although energy and goods prices fell, higher service prices pushed the July Personal Consumption Expenditures Price Index (PCE) above market expectations. Personal income and spending were also stronger than expected, signaling that inflationary pressure is not easing easily.
The U.S. Department of Commerce said on the 26th local time that the July PCE Price Index rose 0.2% from the previous month. It increased 3.7% from a year earlier. Both figures were 0.1 percentage point above market forecasts. The core PCE Price Index, which excludes volatile food and energy prices, rose 0.2% month on month and 3.3% year on year, in line with expectations.
A closer look shows that goods and services prices moved in opposite directions.
Goods prices fell 0.1% from the previous month. Energy-related goods, including gasoline, dropped 2.7%, pulling down overall goods prices. Furniture and durable household goods also declined 0.9%.
By contrast, services prices rose 0.3% month on month. Prices for financial services and insurance jumped 1.2%, while housing costs increased 0.3%. Falling energy prices are easing overall inflation, but rising service-sector prices are offsetting that effect.
Consumer income and spending were also stronger than expected. Personal income rose 0.4% in July from the previous month, while personal consumption expenditures increased 0.2%. Both figures beat market forecasts.
As income growth supports consumption, there is growing concern that demand-side inflationary pressure may not fade quickly. In particular, the continued rise in the service sector, where prices are stickier than in goods, is seen as a burden.
The latest data show that inflation in the United States has not yet been resolved, even though monthly price gains have moderated somewhat this summer. The overall PCE increase of 3.7% remains well above the Federal Reserve's 2% inflation target. Core PCE also remains at 3.3%.
Markets also reacted sensitively to the inflation data. Shortly after the PCE release, U.S. stock index futures edged lower, while U.S. Treasury yields rose.
In particular, long-term U.S. Treasury yields have been rising rapidly recently as inflation concerns combine with worries over fiscal deficits. Yields on the 10-Year Treasury and 30-year Treasury bonds have climbed to their highest levels since 2007, just before the Global Financial Crisis (GFC).
Markets are also concerned that if inflation lasts longer than expected, high long-term interest rates could become entrenched. That is because the United States' massive national debt and fiscal deficit are also pushing up long-term bond yields.



[email protected] Reporter Lee Byung-chul Reporter