By Alicia Wallace, CNN

(CNN) — US consumers kept spending in July, even as inflation remained elevated that month, new data showed Friday.

Consumer spending rose 0.5% from June, according to Commerce Department data released Friday. That’s slightly below expectations for a 0.6% bump but represented a slight pickup from the 0.4% increase notched in June, according to FactSet consensus estimates.

July is typically a month filled with summer sales events, notably Amazon’s Prime Day, as well as a key month for back-to-school spending. However, spending on cars and financial services (bolstered by the strong stock market performance) drove the lion’s share of last month’s spending gains, Friday’s report showed.

When factoring in inflation, spending rose 0.3% last month, an acceleration from a tepid 0.1% gain in June.

“Consumer spending is solid, and goods inflation remains moderate for now as the tariff war has yet to slow the economy appreciably or lead to a worrisome outbreak of inflation that could worry markets,” Chris Rupkey, FwdBonds chief economist, wrote Friday in a note to investors.

The Personal Consumption Expenditures price index — the inflation gauge the Federal Reserve uses for its 2% target rate — rose 0.2% on a monthly basis, which kept the annual rate at 2.6%.

The core PCE price index, which excludes the volatile food and energy categories and is considered a better indicator of underlying inflation trends, rose 0.3% from June (matching the pace seen the prior month) and saw its annual rate accelerate to 2.9% from 2.8%.

Stocks were lower Friday morning but pared some losses after the data release. Dow futures were down 100 points, or 0.21%. S&P 500 futures fell 0.23% and Nasdaq 100 futures slid 0.44%.

The July inflation data was right in line with what economists had expected.

Wage gains helped keep Americans spending

Solid income growth helped to provide fuel for resilient US consumers, whose spending powers more than two-thirds of America’s economic activity.

Personal income rose by 0.4% last month (marking an acceleration from 0.3% in June), a reflection of higher wage gains, the report showed. The savings rate held steady at 4.4% last month.

While both spending and income rebounded last month, July also marked the first month since March when monthly spending exceeded income, noted Heather Long, chief economist at Navy Federal Credit Union.

“This is an encouraging sign that American consumers are still willing to open their wallets when they see deals,” she wrote.

And, in July, the appetite for spending was largely directed in the area of durable goods — products like appliances, cars and the like are that are meant to last for several years.

Auto-related purchases played a key role in the durable goods rebound; however, real (inflation-adjusted) spending also picked up modestly in categories such as furnishings and other home equipment as well as recreational goods and vehicles.

July marked the biggest monthly increase in durable goods since Americans’ pre-tariff spending spree in March, noted Wells Fargo economists Tim Quinlan and Shannon Grein on Friday.

“Spending on these big-ticket items was flattish in April before posting back-to-back declines in May and June, raising concerns about the tariff impact on durable goods spending,” they wrote in a note posted Friday. “Those worries may fade a bit after today’s report showed durable goods spending rebounded in July rising 1.9% in the month.”

However, they also noted that Friday’s report included a continuation of another trend showing how tariffs are starting to weigh on consumers: They’re pulling back on discretionary spending.

Recreational services spending posted the smallest monthly gain of any services category, and spending at hotels and restaurants fell last month, they noted.

Entering a ‘stagflation-lite’ period

The inflation trajectory outlined in Friday’s Personal Income and Outlays report mirrors that of what was seen in the closely watched Consumer Price Index as well as the Producer Price Index.

Prices are rising more than they typically should (and more than desired by the Fed), and businesses are slowly starting to pass along higher tariff costs to the end consumer.

“The real hit (from tariffs) is in the next six months,” Navy Federal Credit Union economist Long told CNN in an interview Friday. “The reason it’s been so slow is the middle class doesn’t have extra room in their budgets to absorb higher costs.”

This is a different environment than 2022, when households were quite a bit more flush from the extra savings they built up during the pandemic and the stimulus payments received during that time, she said.

“A lot of brands and retailers and restaurants were shocked that they could keep raising prices, and people were not pushing back,” Long said. “Now, consumers are pushing back, and that’s a big part of the story of why, even at this point as the inventories run down, we’re seeing a more muted pass-through of the tariffs.”

The tariff-driven price increases were expected to be a slow boil: US businesses loaded up their warehouses prior to the tariffs going into effect; many of the announced tariffs were delayed, reduced or contained many product exemptions; companies along the supply chain are letting their profit margins eat some of the costs; and other tariffs are still going into effect.

Tariffs weren’t expected to drastically reaccelerate overall inflation — but the pace of price hikes remaining elevated for the coming year could present some challenges of their own for the economy, Long said.

“The United States is entering a stagflation-lite period,” she said, noting an economic environment with high inflation, stagnant economic growth and rising unemployment.

The concern moving forward, Long said, is that the higher costs will lead to cost-cutting efforts by businesses.

“I do agree that the Federal Reserve needs to cut in September and needs to cut again in December, because while there’s not an inflation crisis brewing, there is a lot of potential for a layoff crisis to start,” she said.

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CNN’s John Towfighi contributed reporting.