Fed's Favorite Inflation Gauge Shows Slowest Price Increase Since March 2021
The latest update on the Federal Reserve's preferred inflation measure reveals that prices rose slightly more than anticipated in June. The core Personal Consumption Expenditures (PCE) index, which excludes food and energy costs and is closely monitored by the Fed, increased by 2.6% year-over-year in June. This was above economists' forecast of a 2.5% rise and unchanged from the previous month. However, this marks the slowest annual increase for core PCE in over three years.
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The core PCE index rose 0.2% from the prior month, aligning with Wall Street's expectations and showing a faster pace than the 0.1% increase recorded in May.
Michael Gapen, head of U.S. Economics at BofA Securities, told Yahoo Finance, "This provides further evidence for the Fed that the inflation spike we saw in the first quarter was largely an anomaly." He added, "It did not disrupt the disinflation trend. Inflation seems to be gradually decelerating in the direction the Fed desires."
Kathy Bostjancic, Chief Economist at Nationwide, described the PCE print as "benign," adding that the data offers "clear support" for the Fed to consider cutting interest rates in September.
This report follows recent encouraging inflation data. The latest Consumer Price Index (CPI) reading showed core prices climbed 0.1% from the previous month, which was lower than economists' predictions.
Ahead of the PCE release, Federal Reserve Chair Jerome Powell noted that recent inflation data "add somewhat to confidence" that inflation is moving towards the Fed's 2% target. The Fed’s next monetary policy decision is scheduled for July 31, with markets widely expecting that the Fed will keep interest rates steady before initiating its first rate cut in September.