Inflation is cooling off just as economists, the Fed, and Biden expected

• The PCE inflation measure rose 0.4% in July, signaling a slowdown in price growth from the prior month.
• The print matched the median economist estimate. It was the slowest price growth since February.
• The Federal Reserve and the Biden administration expect inflation to cool as the economy settles into a new normal.

Prices for common goods rose as expected in July as case counts rebounded and reopening-fueled demand softened.

The Personal Consumption Expenditures price index - one of the most popular measures of US inflation - jumped 0.4% last month, the Commerce Department said Friday. That matches the median forecast of a 0.4% increase. The print reflects a slowdown from June's inflation rate and the slowest price growth since February.

On a year-over-year basis, the metric rose 4.2%. That just exceeded the median estimate of a 4.1% gain.

The Core PCE index, which excludes volatile energy and food prices, rose 0.3% through July, according to the report. That also matched economist estimates.

Core PCE is the inflation measure of choice for the Federal Reserve, which is tasked with ensuring inflation doesn't rise too high. The central bank has said it will let inflation run above 2% year-over-year for some time as the economy recovers. Policymakers also expect the recent inflation surge to prove "transitory" and fade into 2022 as the US settles into a post-pandemic normal.

The PCE reading comes a few weeks after a similar inflation measure showed price growth easing in July. The Consumer Price Index climbed 0.5% last month, matching economist forecasts and marking a sharp deceleration from June's 0.9% pace. The measure also rose 5.4% year-over-year, still the highest since 2008 but holding flat from June's year-over-year level.

The slowdown from June's inflation print suggests the demand boom seen through reopening could be petering out. Inflation soared to decade-highs through the spring and summer as vaccination helped the US reverse lockdowns. Economic activity rebounded, but where demand quickly shot higher, producers struggled to keep up. Bottlenecks and shortages left suppliers on the back foot, and the resulting gap between businesses' supply and Americans' demand drove prices higher.

Where inflation accelerated the most hints at a future slowdown. Sectors associated with reopening and the direst supply shortages saw prices leap the fastest. Used car prices leaped at least 7.3% for three months in a row before rising just 0.2% in July, according to the CPI report. Airline tickets, fuel, and service businesses also counted for much of the overshoot.

Since the categories are so closely linked to reopening, it's likely inflation will cool off as supply chains heal and demand wanes, Fed Chair Jerome Powell said in a July 28 press conference.

"Essentially all of the overshoot can be tied to a handful of categories. It isn't the kind of inflation that's spread broadly across the economy," he said. "And each of those has a story attached to it that is really about the reopening of the economy."