Inflation slowly ticked back up according to the Bureau of Economic Analysis (BEA) in its latest report, coinciding with several economic challenges faced throughout July.
The Personal Consumption Expenditures (PCE) price index rose 0.2% month-over-month in July, a minor increase after June’s index fell 0.1%, according to the report.
On a yearly basis, inflation’s pace remains unchanged at a 3.7% increase. While not an overwhelming change from month-to-month or year-over-year, Navy Federal Chief Economist Heather Long says July’s inflation is “slightly worse than expected” and still close to a three-year high on social media.
Unless the Federal Reserve can bring inflation down to its goal of 2%, the housing market faces the continued threat, as the latest data from the Department of Housing and Urban Development (HUD) reported that new-home sales fell 10.5% for July.
The PCE index’s 0.2% increase, or $36.3 billion, breaks down into consumer spending on services and goods. Services—such as financial services and insurance, healthcare, housing and utilities, final expenditures of nonprofits and transportation—increased by $86.2 billion on a seasonally adjusted rate for July. But the report notes that this increase was offset by a significant drop in consumer spending on goods, which decreased by $49.9 billion.
Within consumer goods, spending on gasoline and energy continues to decline, dropping $14 billion throughout July and accounting for the biggest decrease in spending overall. Mohamed A. El-Erian—an economics professor of practice at the University of Pennsylvania—says the consumer spending data reinforces the “recent stretch of softer-than expected” economic activity on social media.
Recreational goods and vehicles followed close behind energy, falling $13.6 billion. The only category under goods to increase was “other durable goods,” which grew slightly by $2.3 billion.
Excluding food and energy, the core PCE index also increased by 0.2% month-over-month. Annual core inflation remains unchanged at 3.3% and stays within consensus forecasts according to El-Erian.
While the last Fed meeting ended with the committee voting to continue their “wait-and-see” approach, economists are skeptical that their strategy will bring down inflation. A John Hopkins professor of applied economics, Steve Hanke, described the current inflation situation as “the genie the Fed just can’t put back in the bottle,” on social media.
However, the BEA reports that personal income increased 0.4% for July, at a current dollar amount of $115.1 billion. Disposable personal income (DPI)—personal income less personal current tax—also increased by 0.5%, or $125.9 billion.
While income increases would aid buyers in a market where home prices are slowly rising, the BEA notes that the July increase in personal income can be attributed to “increases in compensation, government social benefits and personal income receipts on assets.” Estimates for personal income from April to June were revised, as data from the Bureau of Labor Statistics (BLS) had been updated.
