Underlying US inflation remains stuck above the Federal Reserve's target: core PCE, the central bank's preferred gauge, rose 0.2% month on month in July, matching expectations, while the annual rate held at 3.3%. The Commerce Department data on personal income and consumer spending also showed headline PCE accelerating to 3.7% year on year and up 0.2% on the month.
The persistence of price pressures arrives as the US economy grows, but at a modest pace. The second estimate of second-quarter GDP, released on Wednesday 26 August by the Bureau of Economic Analysis, confirmed gross domestic product rising at an annualized 1.5%, unchanged from the initial reading and slowing from the 2.1% of the first quarter. The pace did not surprise markets, which were already expecting growth to hold around that level.
Consumers hold up, led by artificial intelligence
Behind the aggregate reading, however, domestic demand looks stronger. Personal consumption spending, which accounts for about 70% of US economic activity, grew at an annualized 3.4% in the second quarter, well above the 0.5% of the previous quarter. Business investment also rose, supported by the artificial intelligence boom. The drag on growth instead came from abroad: imports, which subtract from the GDP calculation, rose 12.5% on an annualized basis over April-June, largely on the inflow of semiconductors and components destined for AI investment. Net exports thus absorbed just over one percentage point of growth, while inventories subtracted a further 0.67 points.
