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Inflation showed its sticky nature in July, rising slightly as increases in services costs offset a decline in the price of goods, the Bureau of Economic Analysis reported on Thursday.

The personal consumption expenditures price index, a metric closely followed by the Federal Reserve, rose 0.2% for the month and 3.3% for the 12-month period. That was in line with estimates.

The core index, stripping out energy and food costs, rose 0.2% and 4.2%, respectively. Last month, the annual rate of increase was 3% and 4.1%.

Other data in the release showed spending and income up.

“Condition of the American consumer remains rock solid,” RSM US LLP Principal & Chief Economist Joseph Brusuelas posted on X, formerly Twitter. He noted that spending was up 0.8%, inflation-adjusted spending was up 0.6% and 2.8% on a three-month annualized pace – placing some risk on the company’s 2.1% forecast for gross domestic product growth in the third quarter. He also pointed out that income was up 0.2%, while wages, salaries and compensation were up 0.4%.”

While the PCE number is perhaps higher than the Fed would like, Chairman Jerome Powell said in his recent speech at the central bank’s summer symposium at Jackson Hole, Wyoming, noted that “on a 12-month basis, core PCE inflation peaked at 5.4 percent in February 2022 and declined gradually to 4.3 percent in July.”

But he also cautioned that the path to the Fed’s 2% annual inflation target will require that interest rates remain high for some time to come.

“Turning to the outlook, although further unwinding of pandemic-related distortions should continue to put some downward pressure on inflation, restrictive monetary policy will likely play an increasingly important role,” Powell said. “Getting inflation sustainably back down to 2 percent is expected to require a period of below-trend economic growth as well as some softening in labor market conditions.”

Markets seem unfazed by the messaging. In recent days, the Dow Jones Industrial Average has been on an upward run and is positioned to open up 150 points at the opening.

“Headlines touting a soft landing are increasing, the consensus seems to be that a soft landing is the most likely scenario, this seems like a unicorn scenario, but mixed economic data makes predicting a recession difficult,” said Shana Orczyk Sissel, CEO and founder of Banrion Capital Management. “We see clear signs of broad economic weakness, but inflation is falling, employment is strong, and the consumer is spending, so it's hard to really see a recession occurring this year.”

Many economists have pointed out that getting inflation down to the 3% range from the 9% of last summer, while an accomplishment, will prove easier than wringing the last 1% out.

“While signs point to a continued slowdown in inflation over time, certain categories give us pause as we close out 2023 and head into 2024,” said Joe Davis, chief global economist at Vanguard. “The decline in house prices appears to have abated, which means that the contribution from shelter to core inflation next year may stabilize if not increase. Upside inflation risk is also present in healthcare services where insurance prices are expected to rise this October along with a continued upward pressure on labor demand in the sector, thus suggesting higher wage costs.”

“Our baseline trajectory anticipates a gradual decline in the pace of inflation with core PCE staying well above 3% through YE 2023 and remaining slightly above 2% by YE 2024,” Davis added.