Key inflation gauge remains elevated during Iran conflict and ongoing US trade fights

The Commerce Department reported Wednesday that the Personal Consumption Expenditures price index rose 3.7 percent in July compared with a year earlier, matching June's annual pace. Inflation remains well above the Federal Reserve’s 2.0 percent target, driven by high service costs, energy market disruptions, and supply chain adjustments. Excluding volatile food and energy categories, core PCE inflation held steady at 3.3 percent annually and rose 0.2 percent from the previous month. The ongoing conflict involving Iran has maintained upward pressure on gas prices, while proposed trade tariffs on major partners such as Canada and China contribute to cost uncertainties across consumer goods. Additionally, surging investment in artificial intelligence infrastructure has increased prices for hardware, computers, and semiconductors. The Commerce Department announced planned methodological adjustments for next month’s release to refine calculations for financial services and software expenditures, which economists estimate could lower measured annual PCE inflation by approximately 0.2 percentage points.