The Personal Consumption Expenditures (PCE) Price Index rose 0.1% month-on-month in May, keeping the annual inflation rate at 2.3%, according to data released by the US Commerce Department on Friday, June 27. Both figures were in line with economists’ expectations.
However, core PCE, which excludes volatile food and energy prices and is considered a better measure of underlying inflation, rose 0.2% on the month and 2.7% on year. These figures were slightly above estimates of 0.1% and 2.6%, respectively.
At the same time, household finances showed signs of strain. Personal spending declined by 0.1% in May against expectations of a 0.1% rise, while personal income fell 0.4%, missing the forecast for a 0.3% increase.
The latest report arrives as the Federal Reserve deliberates on future interest rate actions. While most market participants anticipate the Fed will hold rates steady at its July meeting, some officials have begun advocating rate cuts if inflation remains subdued, especially amid uncertainty over the economic impact of US President Donald Trump’s tariffs.
Markets steady
Despite the negative data, financial markets showed limited reaction. US stock futures pointed to a higher open, and Treasury yields moved up modestly.
The S&P 500 closed at a fresh record high on Friday, capping off a remarkable rebound for US equities this year. Markets shook off trade tensions and geopolitical uncertainties, with Friday’s rally fuelled by renewed optimism over potential trade agreements with China and other key partners.
Also Read: US economy shrank 0.5% between January and March, worse than earlier estimates revealed
Mixed signals
The data, however, paints a mixed picture for policymakers. Strong core inflation suggests rate cuts may be premature, but the dip in consumer activity could make a case for monetary support.
Trump has increased public pressure on the Fed to ease rates, citing low inflation as justification. Fed Chair Jerome Powell, however, has maintained a cautious stance, despite sharp criticism from the White House, with Trump recently labelling him “stupid” and suggesting a replacement may be on the cards.
Inflationary pressures remained relatively subdued in May.
Food prices edged up by 0.2%, but this was counterbalanced by a 1% fall in energy-related goods and services, including a sharp 2.2% drop in petrol and other energy items. Housing costs, meanwhile, rose 0.3% during the month.
