Fed's Preferred Inflation Gauge Declined in June as Price Growth Pulled Back
Key Takeaways
- •The Commerce Department said the PCE index fell 0.1% in June while rising 3.7% from a year earlier.
- •Core PCE rose 0.1% on the month and 3.3% from a year earlier.
- •The monthly core reading was weaker than economists had expected, while the annual core figure matched forecasts.
- •Both headline and core PCE remained well above the Federal Reserve’s 2% long-run inflation target.
- •The report adds to market attention on the Federal Reserve’s next interest-rate move.
The Federal Reserve's preferred inflation gauge edged lower in June, as the pace of price growth pulled back amid volatility in energy markets. Both headline and core measures remain well above the central bank's 2% long-run target.
The Commerce Department reported on Thursday that the personal consumption expenditures (PCE) index declined 0.1% on a monthly basis in June and was up 3.7% from a year ago. Both figures were in line with the expectations of economists polled by LSEG.
Core PCE, which excludes volatile measurements of food and energy prices, was up 0.1% on a monthly basis and 3.3% from a year ago. The monthly figure came in cooler than the 0.2% increase predicted by the LSEG poll of economists, while the annual figure matched expectations. The softer monthly core reading points to some moderation in underlying price pressures, though the year-over-year figure underscores that inflation remains elevated relative to the Fed's goal.
Background on the PCE Index
The PCE index is published monthly by the Commerce Department's Bureau of Economic Analysis and serves as the Federal Reserve's primary gauge for measuring inflation. The Fed targets a 2% annual rate of inflation as measured by PCE over the long run.
Unlike the more widely known Consumer Price Index (CPI) produced by the Bureau of Labor Statistics, the PCE index captures a broader range of household expenditures and allows for substitution effects when consumers shift their spending patterns in response to changing prices.
Core PCE strips out food and energy components, which tend to fluctuate significantly from month to month, providing a reading on underlying inflation trends that policymakers monitor closely when setting monetary policy.
Market Context
The June report comes against a backdrop of heightened market volatility. A panel on Barron's Roundtable discussed the week's market sell-off, which was driven by inflation fears, rising oil prices, and disappointing Big Tech earnings. Readings like the PCE report feed directly into the Federal Reserve's interest-rate decisions, as officials weigh the trajectory of price growth against their dual mandate of stable prices and maximum employment.
Source: Fox Business