In this morning’s data, the PCE Deflator was flat in May, as expected, and was up 2.6% on an annual basis, one tenth less than the annual figure from the previous month. The Core PCE Deflator, which excludes food and energy prices and is closely monitored by the Federal Reserve, increased 0.1% in May, also as expected. Core rates grew 2.6% on an annual basis, which is two-tenths less than the previous month’s annual figure.
Meanwhile, Personal Income grew 0.5% in May, higher than expected, and is two tenths more than the increase in the previous month. Personal Spending grew just 0.2% in May, less than expected. Real Personal Spending, which accounts for inflation, increased 0.3% in May, a rebound from the negative figure the previous month and the personal savings rate as a percentage of disposable income was 3.9%.
Overall, a slight reprieve in the PCE inflation measures in May as the headline figure was flat and the core rate increased only slightly in the month. Annual levels ticked lower, but the core rate is still sticking above the Fed’s 2% annual target. Meanwhile, both income and spending grew in May; however, income was above expectations while spending was below expectations. Consumers appear to be tired of elevated prices and are becoming more selective, per commentary from recent earnings reports. How long inflation remains sticky at elevated levels and its lasting effect on consumers will be a key theme for the economy and markets in the coming months.
In all, the yield on the 10-year US Treasury ticks lower following the report and equity futures are higher as we head into the market open.
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