The Federal Reserve’s preferred inflation gauge pointed to continued progress on underlying price pressures in June, even as higher energy costs remained a looming risk. The headline PCE price index fell -0.1% mom, matching expectations, while annual inflation slowed from 4.1% yoy to 3.7%. Core PCE, which excludes food and energy, rose just 0.1% mom, below expectations of 0.2%, with the annual rate easing from 3.4% to 3.3%. The figures reinforce the view that underlying inflation continued to moderate before the recent escalation in Middle East tensions began pushing oil prices sharply higher.
The report also suggested consumers remained cautious. Personal income increased 0.2% mom, while personal spending rose 0.3%, both slowing from May’s pace but remaining positive. Real personal consumption expenditures increased 0.4%, indicating households continued to support economic growth despite elevated borrowing costs and tighter financial conditions.
For the Federal Reserve, the report provides further evidence that core inflation remains on a disinflationary path. However, policymakers are unlikely to take too much comfort from backward-looking data given the recent rebound in energy prices. The key question now is whether the oil shock proves temporary or begins feeding into wages, services inflation and inflation expectations.
Economic Data
| Indicator | Actual | Expected | Previous |
|---|---|---|---|
| Personal Income mom (Jun) | 0.2% | 0.3% | 0.7% |
| Personal Spending mom (Jun) | 0.3% | 0.4% | 0.7% |
| Real Personal Spending mom (Jun) | 0.4% | — | — |
| PCE Price Index mom (Jun) | -0.1% | -0.1% | 0.4% |
| PCE Price Index yoy (Jun) | 3.7% | 3.7% | 4.1% |
| Core PCE Price Index mom (Jun) | 0.1% | 0.2% | 0.3% |
| Core PCE Price Index yoy (Jun) | 3.3% | 3.3% | 3.4% |
Key Takeaways
- The Fed’s preferred inflation gauge cooled. Headline PCE inflation slowed from 4.1% to 3.7% yoy, while core PCE eased from 3.4% to 3.3% yoy, reinforcing the broader disinflation trend.
- Monthly core inflation remained subdued. Core PCE rose just 0.1% mom, below expectations of 0.2%, suggesting underlying price pressures continued to moderate before the recent energy shock.
- Headline prices declined on the month. The PCE price index fell 0.1% mom, matching expectations and reversing May’s 0.4% increase.
- Consumer spending moderated but remained positive. Personal spending slowed from 0.7% to 0.3%, while personal income eased from 0.7% to 0.2%, pointing to softer—but still resilient—household demand.
- Real consumption remained healthy. After adjusting for inflation, real PCE increased 0.4%, indicating consumers continued to increase spending in volume terms despite restrictive financial conditions.
- The report supports the Fed’s cautious stance. June data show underlying inflation continued to improve, but with oil prices rising sharply after the survey period, policymakers are likely to focus on whether higher energy costs eventually spill over into wages, services inflation and inflation expectations.
