The Federal Reserve’s preferred measure of inflation, the Personal Consumption Expenditures (PCE) price index, was flat in May according to the Bureau of Economic Analysis (BEA), with the headline gauge decreasing less than 0.1% compared to April (in line with forecasts). As expected, the headline PCE price index was 2.6% higher year-over-year, below the increase of 2.7% realized in both March and April. This latest print represents a favorable result for the Fed’s ongoing efforts to combat inflation.
Core PCE, which excludes volatile food and energy costs, rose 0.1% in May from April and 2.6% on the year—both as forecasted. This year-over-year increase of 2.6% marked the lowest such increase since March 2021. Supercore PCE, which strips sticky housing costs in addition to food and energy, was up 0.1% in May compared to April (the lowest month-over-month increase since last August) and 3.4% on the year (down from 3.5% in April). Notably, healthcare costs were the sole contributor to the Supercore PCE increase, with all other categories realizing a decrease month-over-month.
Excluding inflation figures, the BEA Personal Income and Outlays release for May 2024 showed personal income rose 0.5% in May, beating estimates and marking the strongest month-over-month increase since January of this year (when personal income climbed 0.6%). Consumer spending came in softer than expected, rising 0.2% on the month (below the forecast of 0.3%).
This release, along with May’s soft CPI data, unemployment claims hovering at a 10-month high, and the Producer Price Index falling month-over-month, were the type of releases expected at the start of 2024 when up to 6 rate cuts were projected over the course of the year. Now, with promising data releases arriving as we approach the latter half of 2024, markets are projecting two rate cuts by year’s end, with the first occurring in September. This differs from the Fed’s projection of only one rate cut at their meeting earlier this month.
