US PCE Inflation Holds Steady in May 2024, Core Index Growth Slows

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US PCE Inflation Data Expected to Show Slowest Growth in Six Months

Team FS

28/Jun/2024

Key Points:

The US PCE price index is expected to be unchanged in May 2024, marking the least growth in six months.
Core PCE inflation, excluding food and energy, is projected to rise by only 0.1%, the slowest since November.
Annual PCE inflation is anticipated to slow to 2.6%, with core PCE inflation also decreasing to 2.6%.

The Personal Consumption Expenditures (PCE) price index in the United States is expected to show no change in May 2024 compared to April, making it the least growth observed in the past six months. This follows a 0.3% rise in the previous period. The core PCE index, which excludes volatile food and energy prices, is anticipated to increase by just 0.1%, representing the slowest growth rate since November. This is a reduction from the 0.2% rise seen in April.

Meanwhile, the annual PCE inflation rate is expected to slow down to 2.6% from the steady 2.7% recorded in each of the previous two months. Similarly, the annual core PCE inflation rate is projected to decrease to 2.6%, the lowest since March 2021, down from 2.8%.

These figures align with the Federal Reserve's latest economic projections released in June, which estimate annual PCE inflation at 2.6% and the core rate at 2.8% for the current year. The Fed's focus on PCE inflation is due to its comprehensive measure of price changes in consumer goods and services, providing a more accurate reflection of inflationary trends compared to other indices.

The stabilization in the PCE index and the slowdown in the core index highlight a potential easing of inflationary pressures, which is a positive signal for consumers and policymakers. This anticipated data aligns with recent trends observed in other inflation measures such as the Consumer Price Index (CPI) and the Producer Price Index (PPI), which also indicate a cooling off in price pressures.

This expected stabilization in PCE inflation could have significant implications for the Federal Reserve's monetary policy. The central bank has been closely monitoring inflation trends to determine the appropriate stance on interest rates. A slowdown in inflation could increase the likelihood of a Fed interest rate cut later this year, as lower inflation reduces the need for restrictive monetary policy to control price growth.

Investors are currently pricing in a high probability of a rate cut, with expectations of a reduction in borrowing costs by September reaching 64%, rising to 76% by November, and 94% by December. The Fed has indicated a potential for only one 25 basis point cut, but market sentiment suggests there could be more than one reduction if inflation continues to ease.

The potential for lower interest rates is expected to support economic growth by making borrowing cheaper for consumers and businesses. This could boost spending and investment, further supporting the overall economy. However, it also poses risks such as encouraging excessive borrowing and potentially leading to asset bubbles if not managed carefully.

The expected PCE inflation data also comes amid a backdrop of mixed economic signals and geopolitical developments. The recent presidential debate, where former President Donald Trump was perceived as the winner, has introduced additional uncertainty into the economic outlook. Trump's policies, historically favoring lower taxes and deregulation, could lead to increased government spending and potentially higher inflation in the future. This adds a layer of complexity to the Fed's decision-making process as it balances current inflation trends with longer-term economic and policy considerations.

In summary, the anticipated PCE inflation data for May 2024 suggests a stabilization in price pressures, with the core index showing the slowest growth since November. These trends are consistent with other inflation measures and align with the Federal Reserve's projections for the year. The potential implications for monetary policy, particularly the likelihood of an interest rate cut, make this data a critical factor for investors and policymakers alike. As the economic landscape continues to evolve, staying informed about these key indicators will be essential for making sound financial and investment decisions.

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US PCE Inflation Data Expected to Show Slowest Growth in Six Months

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