Consumer price growth on the Fed’s preferred metrics was benign last month, data released ahead of the long holiday weekend in the US showed.

The core PCE index rose 0.161% in July from June, the BEA said. Consensus expected a 0.2% advance. The headline index rose 0.155%, likewise acceptable for policymakers, the balance of whom have deemphasized inflation in their decision calculus around rates.

Note that the YoY core print was 2.6%, a tick lower than expected. That’ll be interpreted by markets as a constructive development. It comes on the heels of a downward revision to the quarterly core PCE print for Q2 on Thursday.

You’ll note from the chart that the 12-month rate in July was a touch warmer than June. But, again, it was expected at 2.7%, so 2.62% was a downside surprise. The 12-month rates for April, May and June were all revised lower. The headline gauge rose 2.5% YoY, in line with consensus.

At this juncture, the Fed’s far more concerned about the labor market than inflation, an asymmetry Jerome Powell effectively enshrined into an official policy stance during his keynote address in Jackson Hole this month. Markets will thus be more sensitive going forward to the jobs data than inflation readouts.

Personal spending was solid in Friday’s release, rising 0.5% and 0.4% in real terms. The latter print was better than expected. Personal income growth was likewise a tenth higher than anticipated at 0.3%. Notably, the saving rate slipped to 2.9%.

As the figure shows, that’s the lowest since June of 2022, when the Fed upped the rate-hike ante to a 75bps cadence.

The only other period during which the saving rate sported a two-handle was in the years leading up to the financial crisis.

All in all, the update was as-expected. The inflation prints will underscore the Fed’s shift to a labor market-centric decision calculus and the lower saving rate may suggest the “healthy” in “healthy spending” is a bit of a misnomer.