The Fed’s preferred inflation measure cooled even further in June


Another major economic report further supported the idea that a soft landing is not only possible, but in motion: The Federal Reserve’s favored inflation gauge continued its slowdown in June as consumers kept the US economic engine going.

Data released Friday from the Department of Commerce showed that the personal consumption expenditure price index rose 3% for the 12 months ended June, easing for the second straight month and stepping back from a 3% rise. .8% in May.

Excluding energy and food prices, the core PCE index showed prices rising 4.1% in June from the previous year. Economists had expected the core index to rise 4.2% year on year. In May, core PCE was up 4.6% annually.

The Fed uses the core PCE index as a benchmark for its inflation target of 2%.

On a monthly basis, both the headline and core index rose by 0.2%.

Friday’s data “supports the idea that we are in the middle of a soft landing” to push inflation back without triggering a recession, Nationwide Mutual chief economist Kathy Bostjancic told CNN. That said, it’s still elevated. At 4.1%, we are more than double the 2% inflation target that the Fed ultimately wants to reach.”

And that — coupled with the continued strength of consumer activity — means the Fed may still have its foot hovering over that accelerator. Earlier this week, the US central bank raised interest rates by a quarter point, bringing them to their highest level in 22 years.

“It’s going to make them continue to be aggressive,” she said of Fed officials. “They will still be vigilant, but it’s certainly welcome news.”

The PCE indices are part of the Personal Income and Outlays report, which provides a more comprehensive picture of price shifts, including how consumers react to them and how much consumers are spending, bringing in and saving.

Personal incomes rose 0.4% in June, somewhat in line with increases seen since February, while the personal savings rate fell from 4.6% to 4.3%.

Friday’s report also found that consumer spending rose 0.5% in June, a rebound from the more moderate pace of the previous four months. In May, spending rose by a revised 0.2%.

Adjusted for inflation, spending rose 0.4%, driven by an increase in goods-related purchases, particularly of new trucks and recreational products and vehicles, the report said.

“It just shows consumer resilience, the fact that they continue to spend at such a strong clip on goods as patterns return to normal and services become a bigger part of consumption,” said Shannon Seery, economist for Wells Fargo. . “I think a lot of people have been waiting for the commodity consumption shoe to come down, but we really don’t see that happening.”

Friday’s spending data provides a fuller picture of what was suggested in Thursday’s second-quarter GDP report: the economy grew stronger than expected, while consumers reined in some spending from earlier this year.

Still, the increase in spending in June could mean a strong start to the third quarter, Seery said.

To what extent that momentum is just enough to keep the economy going and not too strong to fuel inflation remains to be seen, she added.

“It’s kind of a circular, where a tight labor market keeps consumer spending going, and that keeps the economy going, but that also keeps the Fed warm,” she said. “I think the Fed is looking at this report and maybe not saying, ‘We need to do more immediately,’ but clearly taking it as an indication that they’re going to have to stay at that upper limit for quite some time.”

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