Personal Consumption Spending Price Index: The Federal Reserve pays close attention to the personal consumption spending price index. In June, the index showed signs of slowing down. Excluding food and energy, the average increased by 0.2%, aligning with Dow Jones’ prediction. The core PCE, including food and energy costs, increased by 4.1% YoY, slightly below the expected 4.2%. The yearly rate in May was 4.6%, the lowest since September 2021.
Headline PCE inflation, with food and energy costs, increased by 0.2% monthly and 3% annually. The annual rate was 3.8% in May, down from March 2021.
Stock futures rose and Treasury yields fell in response to positive news. George Mateyo, Chief Investment Officer at Key Private Bank, is optimistic about risk assets as inflation decreases and the economy
continues to grow. This could allow the Fed to halt interest rate hikes.
Also Read: Private Equity Firms: Thriving Amid Challenging Interest Rates, says KKR’s Pete Stavros
The latest numbers confirm inflation is decreasing compared to last year’s high rates. The CPI and customer expectations indicate slower inflation, aligning with long-term trends.
The PCE index is used by the Federal Reserve as it considers customer behavior and provides an alternative view of price trends, unlike the CPI.
The Commerce Department reported that personal income increased by 0.3% and spending increased by 0.5% alongside inflation figures. Slightly less money came in, but spending remained unchanged. The Fed has raised rates 11 times since March 2022, reaching a 22-year high of 5.25–5.5%. The report comes after the 11th increase. Chairman Powell said that future choices about interest rates should be based on data.
In Q2, compensation costs went up by 1%, which was a little less than the 1.1% rise that was expected.