The Fed's preferred inflation gauge: PCE prices up 3.7% in the year to July

The personal consumption expenditures (PCE) price index, the inflation measure the Federal Reserve uses for its 2% goal, rose 0.2% in July 2026 and was 3.7% higher than a year earlier, the Bureau of Economic Analysis reported on 26 August. Excluding food and energy, core PCE prices also rose 0.2% on the month and were 3.3% higher than a year earlier.

Income, spending and saving

• Personal income: up $115.1 billion, or 0.4%
• Disposable personal income: up $125.9 billion, or 0.5%
• Consumer spending: up $36.3 billion, or 0.2%
• Real consumer spending, adjusted for prices: up less than 0.1%, after 0.4% in June
• Personal saving rate: 3.0%

Price increases absorbed almost all of the rise in consumer spending, so real spending barely grew.

Why PCE and CPI differ

Consumer price index inflation was 3.4% in August, with core CPI at 2.4% (CPI report). The two reports cover different months, but the measures also differ in design. The PCE index includes spending made on households' behalf, such as employer-provided health insurance, gives housing a much smaller weight than the CPI, and updates its weights as spending patterns change. That's why the two can tell different stories, and why the Fed's target refers specifically to PCE.

What it means for the Fed on 16 September

The Fed aims for 2% PCE inflation over the longer run. With headline PCE at 3.7% and core at 3.3%, inflation remains well above that goal going into the 15–16 September meeting (preview). The August PCE figures follow later in September.

For the dollar, the economic projections and dot plot published with the September decision will show how officials weigh inflation against a softer labour market (dot plot explained). Other central banks' targets are compared in inflation targets of the major central banks.