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By Kristin Myers, Editor-in-Chief

What's Happening Today

A report out this morning from the Bureau of Economic Analysis showed the Federal Reserve's preferred inflation metric, personal consumption expenditures (PCE), surged more than economists had expected last month, telling us all what we already knew: Costs are rising. The PCE price index increased 1% in June, up from May's gain of 0.6%, and jumped 6.8% from last year. That's its biggest annual jump since January 1982. The "core" rate, which excludes more volatile food and energy prices, rose 0.6% last month, up from 0.3% in May and was 4.8% higher than a year ago.

Meanwhile, personal incomes rose by 0.6%—higher than expected. That might seem like some good news, but still leaves room for concern, as prices are rising faster than incomes, impacting our ability to save.

The personal savings rate stood at 5.1%, down from 5.5% in May. The personal savings rate has been steadily declining since earlier this year when the rate stood at 5.8%. At the end of last year, that rate was nearly 9%.

In other words, savings rates are shrinking as Americans are forced to shell out more money to buy necessities like groceries. And that's not a good thing.

As prices rise, you may want to reevaluate your budget and adjust spending so that you're still able to save enough for an emergency, and pay down any debt you might have now as higher interest rates make borrowing more expensive. And if you're particularly concerned about job security, reconsider any large purchases you might want to make.

- Kristin

Editors' Picks

Two US Cost Gauges Surpass Estimates, Stoking Inflation Concern (Bloomberg)

What Is the 10% Savings Rule? (The Balance)

6 Ways You're Coping With a Roller-Coaster Market (The New York Times)

How To Make a Personal Budget in 6 Easy Steps (The Balance)

Procter & Gamble Sounds a Warning After Strong Quarter (The Wall Street Journal)

Charles Schumer and Joe Manchin's 'Inflation Reduction Act,' Explained (The Washington Post)

Why Is Investing Important? (The Balance)

Term of the Day

Personal Consumption Expenditures (PCE) Price Index

Although they both measure inflation, there are some subtle differences between the PCE Price Index and the Consumer Price Index (CPI).

For example, the PCE Price Index uses data from the Gross Domestic Product report and businesses, while the CPI uses data from household surveys the Bureau of Labor Statistics creates. It surveys around 14,500 families and collects prices for about 80,000 consumer items. The CPI includes sales taxes but not income taxes.

The "core" PCE Price Index excludes more volatile food and energy prices and is the preferred gauge of inflation for the Federal Reserve, which targets an inflation rate of 2%. If it is above 2%, the Fed will increase interest rates and use its other tools to cool consumer demand.

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