US inflation ticks higher in June – PCE

The US personal consumption expenditures (PCE) price index, Fed’s preferred inflation gauge for monetary policy, ticked up 0.1% in June after flat figure in May.
Annualized PCE price index climbed 2.5% previous month, in line with expectations, after rising 2.6% in May.

Core PCE, stripped for the volatile food and energy components, rose 0.2% in June month on month, meeting expectations, after the index rose by 0.1% in May, while year on year core PCE was unchanged at 2.6% in June and overshot 2.5% consensus.

Moderate rise of prices in June adds to signals of improving inflation environment and contributes to the narrative that the Federal Reserve would start cutting interest rates in September.

The data indicate that price pressures are easing and could help Fed policymakers build more confidence that inflation is moving toward the central bank’s 2% target.

Demand in the economy has cooled in response to the central bank’s aggressive monetary policy tightening in 2022 and 2023, while economic growth averaged 2.1% in the first half of this year compared to 4.2% in the second half of 2023.

The Fed has raised its interest rate by 525 basis points since 2022 and kept its benchmark overnight interest rate at 5.25%-5.50% range since last July.

Current environment of easing inflation and looser labor market conditions, add to growing market expectations for three rate cuts this year, with easing cycle likely to start in September.

Separate report showed that consumer spending, which accounts for more than two thirds of US economic activity, increased 0.3% last month after rising 0.4% in May, while personal income rose by 0.2% in June compared to downwardly revised rise by 0.4% in May.