In this morning’s data, the PCE Deflator increased 0.1% in April as expected and was up 2.1% on an annual basis. The Core PCE Deflator, which excludes food and energy prices and is closely monitored by the Federal Reserve for policy decisions, also increased 0.1% in April, as expected. The core rate grew 2.5% on an annual basis, which is two tenths less than the revised annual figure from the previous month.
Meanwhile, Personal Income grew 0.8% in April, much higher than expected and is a slightly higher increase than the previous month. Personal Spending increased 0.2% in April, as expected and is well below the increase in the previous month. The personal savings rate as a percentage of disposable income was 4.9%, which is the highest level over the past 6 months.
Overall, both the headline and core PCE deflator were relatively flat in April, as expected and similar to the previous month. Annual measures have moved lower but the core rate remains above the Federal Reserve’s stated target, prior to tariff impacts. Personal income increased more than expected, while spending was in-line, pushing the savings rate higher in the month. Consumers are hanging in there but appear a bit cautious, which was also highlighted in the commentary in recent retail earnings reports.
Considering that the impact of tariffs is still unknown and consumers appear cautious, the Federal Reserve is likely to remain patient with adjustments to monetary policy in the near-term. As a result, the strength of the labor market and consumers will be key factors for the economy and markets in the coming weeks.
In all, the yield on the 10-year US Treasury ticks slightly higher following the report and equity futures are lower as we head into the market open.
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