Biggest takeaways from the government's latest inflation data

Inflation continued to run hot in July, underlining the Federal Review's dilemma as it looks to lower prices for American consumers while propping up a job market that is starting to wobble.

Prices across the U.S. rose at an annual rate of 2.6% last month, according to personal consumption expenditures data released on Friday. That's the same figure as in June, a sign inflation remains persistent. Stripping out volatile food and energy prices, inflation in July actually ticked up to 2.9% from a year ago, up from 2.8% in June.

Read on for a breakdown of Friday's PCE report.

The latest PCE data shows that consumer spending rose 0.5% in July, suggesting that Americans are continuing to open their wallets even in the face of economic uncertainty.

But while people continue to spend, many consumers are increasingly having to make trade-offs on what they spend their money on, Gregory Daco, chief economist at EY-Parthenon, told CBS MoneyWatch.

"Consumers are trying to push through — they're doing the best they can, but they're increasingly under pressure, and therefore they're being more cautious with discretionary outlets," he said. "They travel less. They spend less on restaurants, spend more cautiously on transportation."

Such caution can augur a deeper slump given that consumer spending accounts for roughly two-thirds of economic activity. The closely watched University of Michigan consumer sentiment survey, released Friday, showed that Americans are increasingly concerned about inflation.

Although inflation has cooled significantly since peaking in 2022, it remains stubbornly above the Fed's 2% annual target. And consumers continue to feel the pain in the form of higher prices for some groceries as well as rising electricity costs. Another key inflation gauge — the Consumer Price Index — shows that the price of coffee was up 14.8% from a year ago, while beef and egg costs were 15.5% and 16.4%, respectively.

Not yet. In a positive sign, the price of goods, which are most susceptible to tariffs than services, cooled slightly in July, the PCE data shows, decreasing 0.1% from the month prior. That suggests tariffs have had a minimal impact on prices so far.

"It's not showing up in a goods prices, in the government statistics at least," Adam Crisafulli, head of Vital Knowledge, told CBS MoneyWatch.

Still, analysts say inflation could bare its teeth more in the coming months as U.S. tariffs start to trickle through the economy.

"We continue to expect tariffs to take a growing bite out of growth in real income and real consumer spending," Nancy Vanden Houten, lead U.S. economist at Oxford Economics, told investors in a report.

A critical question facing the economy is whether any tariff-induced inflation amounts to a one-time boost to prices or results in a more prolonged increase. Fed Chair Jerome Powell laid out the scenarios in a speech in Jackson Hole, Wyoming, earlier this month, noting that even if inflation does end up being a "one-time" scenario, it will still "take time for tariff increases to work their way through supply chains and distribution networks."

Most Wall Street analysts think the latest inflation figures keep the Fed on track to lower interest rates at its Sept. 16-17 meeting.

"Today's numbers on both the personal consumption, expenditure, and income and spending, were right down the middle of the fairway," said Art Hogan, chief market strategist for B. Riley Wealth. "This leaves the door wide open for the Fed to cut rates in September, and likely again in October and in December."

Traders put the likelihood of a rate cut at 87%, according to CME Group's FedWatch tool.

• Jerome Powell
• Tariffs
• Consumer Price Index
• Inflation
• Federal Reserve