Prices for many things went up a little in July, according to a key report that the Federal Reserve watches closely. This is what people might call the personal consumption expenditure, or PCE, price index. It reflects how much prices of goods and services that people buy have changed in value.

So, what’s the scoop? The PCE price index rose 0.2% in July. Or put another way: on average, things cost a little more than they did in June. Compared with the same time last year, prices are up 2.5%. That’s in line with expectations.

But here’s the thing: If we take out food and energy prices, because those can be so wonky, we get something called the “core PCE.” For July, that rose 0.2% too. The past year, though, it was up 2.6%. That is a smidge lower than the 2.7% economists forecast.

Why do we care about core PCE? The Fed thinks it’s a better way to see if prices are going up in a steady way, instead of just bouncing around with food and energy prices. Core PCE and overall inflation rate-including all-items-gained similarly to last month’s numbers.

Core prices, excluding housing, rose only 0.1% in July. On the other hand, housing continued to rise and has risen 0.4% last month. That is why, despite some reductions or stability in prices, the cost of housing is still going up.

Now, coming to the money and spending of people:. It added that personal income, a measure of how much people earn, rose 0.3%. This is slightly above the estimate of analysts, who assumed an increase of 0.2%. People spent more money, though. Spending did increase by 0.5%, but was in line with expectations. But here’s the thing: people are saving less. The saving rate dropped to 2.9%, the lowest since June 2022, meaning that people are holding less for the future.

When we look at the disparate components of prices, the picture gets a little murkier. Goods prices were down by less than 0.1%, while prices for services increased by 0.2%. For the entire year, goods prices are practically unchanged, while prices for services leaped by 3.7%. Prices for food were up by 1.4%, and those of energy by 1.9%.

How did the markets react to this? Well, not much! Stock market futures showed that Wall Street opened a little higher, while Treasury yields, representative of interest rates on loans from the government, were also up.

Joseph Brusuelas, chief economist, said this report shows that across the United States economy, the action of prices is stabilizing. He felt that the economy has attained a perfect position to grow steadily at 1.8 percent as the Fed starts slashing interest rates. Lower interest rates could spur businesses to grow and create jobs, and might prompt investors to put more money into the economy.

Speaking of interest rates, the markets are now almost sure that the Fed will cut in September. The only question is how much the Fed will cut rates-whether a small cut of 0.25% or a bigger one of 0.50%. As for the current outlook, there is a bigger chance of a smaller cut and the chance of a bigger cut going down a bit.

Of late, Fed Chair Jerome Powell has sounded optimistic about inflation inching closer to the Federal target of 2%. Now, the Federal focus will no longer be restricted to only containing inflation; instead, it will try to contribute to the job market, too. Although unemployment is still at a pretty low level of 4.3%, it has increased from what it was a year ago and can be said to be inching upwards. Moreover, it is felt that finding jobs may be becoming tougher.

So, what next? Everybody’s waiting for the August jobs report, coming out in a week. This report will be expected to show that about 175,000 new jobs were created, giving a better idea of how the job market is doing and whether the economy stays strong.

Prices keep on going up, but not as fast compared to what was forecast by some people. Income and spending improve, though people save less. The Fed is likely to lower interest rates soon, and focus attention will fall on making the job market healthy while keeping inflation under control.