The core services PCE Price Index, which excludes energy services, accelerated to +0.36% (+4.4% annualized) in July from June, the third month in a row of acceleration. The increase was driven by non-housing services; rents continued to decelerate.
This caused the 3-month core services PCE price index to accelerate to 3.1% annualized; and it caused the 6-month index to accelerate to 3.3%. Services are not tariffed.
We have already seen this trend of sharply rising services inflation in the CPI for July, and in the PPI for July, both released earlier this month. The PCE price index here is favored by the Fed as yardstick for its inflation target and usually runs lower than the CPI – and did so for July.
But the durable goods PCE price index fell by 0.11% (-1.3% annualized in July from June). Many durable goods are imported, or their components are imported, and many of them are tariffed.
Durable goods include all motor vehicles, appliances, furniture, bicycles, phones, audio and video equipment, etc.
This is where a big part of the tariffs would show up. But whether or not companies can pass on these taxes depends on market conditions – whether consumers keep buying products at higher prices, now that the free money is gone, or whether sales fall, and companies have to cut prices to get the sales they want.
Durable goods prices spiked massively starting in 2020 and into 2022, and then consumers came out of their pay-whatever stupor, and as resistance to higher prices set in, companies were forced to cut prices and offer deals in order to sell their goods, which is why the durable goods PCE price index turned negative in late 2022. It turned positive for much of 2025 but fell into the negative again in July....
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