July 26 (Reuters) - U.S. Federal Reserve policymakers on Friday got fresh evidence of progress on their battle with inflation, fueling expectations they will use their meeting next week to signal interest-rate cuts starting in September.
The personal consumption expenditures (PCE) price index edged up just 0.1% last month, the Commerce Department's Bureau of Economic Analysis reported.
That put the year-over-year increase -- which the Fed targets at 2% -- at 2.5%, after rising 2.6% in May.
Fed policymakers have said they want to be confident that inflation is headed sustainably back to 2% before cutting rates. With inflation edging closer to that goal but still above it, they are seen keeping the policy rate in the 5.25%-5.5% next week.
"From the Fed’s perspective, cumulatively, we think the data show enough progress - on both inflation and labor market conditions - for policymakers to open the door to a rate cut in September at next week’s FOMC meeting," wrote High Frequency Economics' chief US economist Rubeela Farooqi.
After the data, traders of futures tied to the Fed policy rate added slightly to bets the Fed will deliver three rate cuts by year end.
Core PCE prices, which exclude volatile food and energy prices and which the Fed uses as a gauge of where inflation is headed, accelerated 0.2% last month from May, the report showed, a bit more than the 0.1% economists polled by Reuters had projected.
Reporting by Ann Saphir
