The Personal Consumption Expenditures index , the Federal Reserve’s preferred inflation measure, held at a 3.7% annual pace in July, slightly higher than forecasted and reflecting persistent cost pressures for consumers.
The US Personal Consumption Expenditures (PCE) price index rose +3.7%yoy in Jul-26, matching June’s reading but slightly topping consensus estimates of +3.6%yoy, reflecting persistent top-line price pressures. On a monthly basis, headline PCE inflation printed at +0.2%mom, coming in above market expectations of a +0.1%mom increase and marking a firm rebound from the -0.1%mom contraction recorded in Jun-26. The monthly acceleration was primarily underpinned by services inflation, which picked up momentum to +0.3%mom (Jun-26: +0.1%mom), still outpacing a narrowing decline in goods prices, which fell by -0.1%mom (Jun-26: -0.6%mom).
Meanwhile, underlying price dynamics remained steady. The core PCE price index, rose by +0.2%mom (Jun-26: +0.1%mom), in line with market forecasts. On an annual basis, core PCE inflation held firm at +3.3%yoy in Jul-26. While the core momentum is tracking in line with expectations, the broader disinflationary process faces ongoing friction from sticky service sector costs.
In separate release, the US economy expanded at a moderate +1.5%qoq on annualised basis in 2Q26, (1Q26: +2.1%qoq), matching preliminary estimates. Despite the headline deceleration, underlying private domestic demand remained robust as personal consumption surged +3.4%qoq, its fastest pace since 3Q25, powered by strong gains in spending on goods (+4.3%qoq) and services (+3.1%qoq). Concurrently, fixed investment jumped +7.0%qoq, anchored by an +8.5%qoq surge in nonresidential outlays as capital spending on equipment and intellectual property products continued to benefit from strong AI-driven demand.
Despite the resilient 2Q26 demand and sticky Jul-26 PCE inflation, MBSB believes the Fed to keep fed funds rate unchanged for now. Although GDP growth moderated to +1.5%qoq, underlying private-sector strength and persistent service inflation signal that policy rates will remain restrictive for longer to ensure disinflation stays on track. Meanwhile, market will be on edge ahead of the Jackson Hole meeting, looking for fresh signals for possible policy changes.
