On Friday, the Bureau of Economic Analysis released its report on the Personal Consumption Expenditures (PCE) price index, a key gauge of inflation that the Federal Reserve closely monitors. The data for June indicated a continued slowdown in inflationary pressures. Specifically, the PCE index, which measures changes in the prices of goods and services consumed by individuals, increased by 1% from the previous month and by 2.5% year-over-year compared to June 2023. These results were in line with Dow Jones economists’ expectations and show a slight easing from May’s year-over-year increase of 2.6%.
While this slowdown is encouraging, inflation remains above the Federal Reserve’s target rate of 2%, meaning the central bank will need to carefully evaluate this data as it considers potential adjustments to interest rates. The Federal Reserve’s decisions regarding interest rates are crucial for managing economic growth and controlling inflation. The June data will be a critical factor in their deliberations, as they assess whether to maintain, increase, or decrease rates in response to the evolving economic conditions.
The report also detailed changes in disposable personal income, which rose by $37.7 billion, or 0.2%, in June. This increase reflects higher earnings and transfer receipts, contributing to the overall stability of consumer spending. The PCE price index’s overall increase of 0.1% in June was modest, and when excluding the more volatile categories of food and energy, the core PCE price index rose by 0.2%. This suggests that while overall inflation remains present, it is not accelerating significantly.
Real Disposable Personal Income (DPI), adjusted for inflation, increased by 0.1% in June. Real Personal Consumption Expenditures (PCE), which measure the quantity of goods and services purchased, rose by 0.2%. This indicates a steady pace of economic activity, with consumers maintaining their spending habits despite inflationary pressures.
The breakdown of spending reveals that goods and services each experienced a 0.2% increase for the month. Within the goods sector, the most significant contributors to growth were nondurable goods, such as pharmaceuticals and medical products, as well as recreational goods. These increases were partially offset by declines in motor vehicles, gasoline, and other energy-related goods. In the services sector, notable gains were driven by international travel and housing, reflecting a continued recovery in these areas.
Robert Frick, a corporate economist with Navy Federal Credit Union, characterized the report as “good enough” to support ongoing economic expansion. He highlighted that consumer spending and income levels are sufficient to sustain economic growth while inflation continues to ease. Frick suggested that the current inflation data could make it easier for the Federal Reserve to consider rate cuts, if necessary, to support economic stability.
Year-over-year inflation continued its gradual decline, falling to 2.5% in June from 2.6% in May and 2.7% in April. This ongoing slowdown in inflation is a positive sign for the economy, indicating that the rate of price increases is moderating, even though it has not yet reached the Federal Reserve’s 2% target.
Overall, the June PCE report provides a mixed yet reassuring picture of the economy. It shows that while inflationary pressures are still present, they are moderating. This data will be a key input for the Federal Reserve as it navigates its monetary policy decisions, balancing the need to support economic growth while continuing to address inflation.