Announced this morning, the PCE Deflator increased 0.3% in April, as expected and was up 2.7% on an annual basis, the same as last month. The Core PCE Deflator, which excludes food and energy prices and is closely monitored by the Federal Reserve, increased 0.2% in April, also as expected. Core rates grew 2.8% on an annual basis, which is also the same as the previous month.
In addition, Personal Income grew 0.3% in April, as expected, and is two tenths less than the increase in the previous month. Personal Spending grew 0.2% in April, slightly less than expected and five tenths less than the revised increase in the previous month. Real Personal Spending, which accounts for inflation, decreased -0.1% in April, five tenths less than the revised increase in the previous month and the personal savings rate as a percentage of disposable income was 3.6%.
Overall, both headline and core PCE measures increased in April, albeit as expected. Inflation remains sticky as the annual levels for the core rate have stayed put in recent months above the Federal Reserve’s 2% target. Meanwhile, both income and spending grew less than the strong increases seen in the previous month. Spending was less than expected, hinting that consumers are becoming weary. To what extent consumer spending slows down and brings inflation down further will be a key consideration for Federal Reserve policy in the months ahead.
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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