Consumer spending posts biggest gain in four months despite rising inflation

Household outlays rose 0.3% from the month before, the Bureau of Economic Analysis reported. The increase was fueled by steady income growth and stronger purchases of goods, particularly cars, furniture, and recreational equipment.

A key inflation measure watched closely by the Federal Reserve — the core personal consumption expenditures index, which leaves out food and energy — also rose 0.3% for the month as tariffs on imports raised the prices of some goods. The gauge increased to 2.9% year-on-year, its fastest pace in five months.

Much of the latest price pressure came from services, including financial fees and leisure activities, while goods costs eased. That could add to concerns about inflation as President Donald Trump’s trade tariffs filter through into the wider economy. The Federal Reserve’s next interest rates decision is Sept. 17.

Traders still expect the Fed to cut rates after Chair Jerome Powell opened the door to restarting rate cuts at an August speech at Jackson Hole, Wyoming, but policymakers will receive several more key pieces of economic data before that which could yet swing the balance.

The latest figures highlight how consumer demand has held up despite high borrowing costs and widespread concern over tariffs imposed by Trump in recent months. Many companies have so far tried to avoid passing on higher import costs by absorbing expenses or cutting inventories, but an increasing number have warned they will have to raise prices.

Spending was largely underpinned by income growth, with wages and salaries jumping 0.6% in July, the largest gain since late 2024. Real disposable income went up 0.2% while the household saving rate was unchanged. 

However, with last month’s data suggesting the labor market is losing steam, some are concerned that paychecks will not keep pace with price rises as the year progresses. High prices, inflation, and worries about tariffs weighed on consumer sentiment in a recent survey. More jobs data is due next week, which could bring fresh clues about this. 

Trump has repeatedly attacked Powell and the Fed this year for its repeated decisions to hold rates steady, mocking the chair as “Too Late” and a “moron” while insisting inflation is no longer a concern. On Monday, he moved to oust Fed governor Lisa Cook, part of a bid to assert more control over the central bank.