US inflation accelerated sequentially in July, keeping the Federal Reserve's preferred gauge for price increases well above its 2% target, while consumer spending growth eased.
The headline personal consumption expenditure price index rose by 0.2%, following a 0.1% decline in the prior month, the Bureau of Economic Analysis reported Wednesday. That's above the consensus for a 0.1% gain in a Bloomberg-compiled survey, keeping the annual headline rate at 3.7%, which also exceeded the expected 3.6% print.
The Fed's preferred core measure, which excludes food and energy, also registered a 0.2% gain, as expected. That's faster than the June print of 0.1%. The annual core gauge held steady at 3.3%, as projected.
Wednesday's report comes amid an apparent split among the Fed officials on the path forward for interest rates, while they wait for new data to help them determine their next policy action.
On Tuesday, Boston Fed President Susan Collins said the central bank may have to tighten its monetary policy soon, unless inflation continues to cool.
Last month, the Federal Open Market Committee decision maintained the policy rate for the fifth consecutive time. However, three regional Fed presidents -- Beth Hammack of Cleveland, Neel Kashkari of Minneapolis and Lorie Logan of Dallas -- called for a hike of 25 basis points at that policy meeting, voicing concerns over elevated inflation.
Markets are currently pricing in a 60% probability that the FOMC will keep the benchmark rate steady next month, with the remaining odds in favor of a 25-basis-point hike, according to the CME FedWatch tool.
Personal consumption expenditures rose 0.2% in July, official data showed, above the expected 0.1% increase but slower compared with the 0.3% growth in June. After adjusting for inflation, real PCE was flat, as analysts projected, following a 0.4% growth in the prior month.
Goods spending contracted by 0.6% in July after a 0.6% increase the month before, while services spending growth decelerated to 0.3% from 0.4%.
"July may have been the hottest month on record in the United States, but the temperature on consumer spending was turned down," Ksenia Bushmeneva, economist at TD Economics, said in a report. "The softer reading was not entirely unexpected, as weakness in goods spending had already been signaled by last month's retail sales report."
Retail sales in the US unexpectedly decreased last month, registering the largest monthly drop in more than a year, amid declines in spending on motor vehicles and at gas stations.
