Consumer prices measured by the personal consumption expenditures (PCE) price index rose 0.2% in May. The core-PCE index, a key metric used by the Federal Reserve to gauge inflation pressure, rose by 1.5% annually, down from April’s 1.6% rise.
- A rebound in food prices was offset by small gains in the cost of other goods.
- The core-PCE index rose by 1.6% in the 12 months through May, matching 1.6% in April.
- The PCE index rose by 1.5% in April. The results in both cases are in line with expectations.
Excluding the volatile components of food and energy, the PCE price index rose by 0.2% in May. This so-called core PCE price index rose by 1.6% annually in both May and April. The core PCE is used to measure inflation which is well below the Federal Reserve’s 2% target for 2019. The Fed has downgraded its 2019 target from 1.8% to 1.5%, and recently signalled that it may implement rate cuts this year due to the headwinds created by the ongoing trade war as well as low inflation. Fed Chairman Jerome Powell dropped language referring to weak inflation pressure as transient.
Consumer spending rose by 0.9% annually for Q1, the slowest rate in a year while the Q1 GDP grew by 3.1%. Q2 GDP expectations are currently below 2%. Strong spending and income growth should continue to support the current period of economic expansion even amid a global slowdown.
On the #inflation front:
- headline PCE prices +0.2%
- core PCE prices +0.2%
> Headline inflation at 1.5% y/y (0.1ppt from last month) while core inflation at 1.6% y/y (unchanged)
> @OxfordEconomics expects inflation will be very similar in June
> #Fed to cut 25bp in July pic.twitter.com/tJrafzDIu5
— Gregory Daco (@GregDaco) June 28, 2019
“The trend seems to be getting back toward the pace that the Fed will be more comfortable with,” said Stephen Stanley, chief economist at Amherst Pierpont Securities LLC. “The question really is how patient they want to be.”
Earlier this week, Powell said recent data show that the inflation undershoots “may be more persistent than we had hoped.”
Gold prices are currently trading at $1,412.21/oz, with 0.04% growth on the day, a high of $1,423.85/oz, and a low of $1,406.44/oz. Gold prices have seen little reaction to the news of tame inflation pressure.