Core PCE inflation
Friday, 26 July at 10.30pm AEST
In May, the headline Personal Consumption Expenditures (PCE) price index did not increase, maintaining the annual inflation rate at 2.6% YoY. The US core PCE price index, which excludes food and energy prices, rose by a modest 0.1% from the previous month. This was the smallest increase since November 2023, slowing the annual core PCE inflation rate to 2.6% in May from 2.8% previously.
The Federal Reserve closely monitors the PCE inflation readings because they provide a comprehensive measure of inflation, reflecting changes in consumer behavior, such as substitutions made when prices rise. While the central bank officially tracks the headline PCE, it often places more emphasis on the core figures as they are considered a more accurate reflection of long-term inflation trends.
For June, market expectations suggest that the headline PCE will rise by 0.1% month-over-month (MoM), which would reduce the annual rate to 2.5%. The core PCE is anticipated to increase by 0.2% MoM, keeping the annual rate steady at 2.6%. A 25 bp rate cut is fully anticipated at the Fed’s September Federal Open Market Committee (FOMC) meeting, with an additional 63 basis points in rate cuts expected before the end of the year.
