The personal consumption expenditure (PCE) price index rose 0.1% in June, as expected, putting the year-over-year measure at 2.5%, the lowest since February. Consumers are spending as discounts pick up, an ideal scenario for the Fed. The data today is not enough for the fed to cut next week but will spur debate on rate cuts. We still expect two cuts this year, starting in September. Here are a few data points we highlighted this month:
1. Core PCE, the Fed's preferred measure of inflation, rose 0.2% in June. The index rose 2.6% from a year ago, a move sideways from May. The year-on-year measures get harder later in the year given the progress made in 2023.
2. The super core services measure of inflation, which strips out shelter costs from services, rose 0.2% in June and 3.4% from a year ago. Results were mixed in services; homeowners got a brief reprieve on insurance and airfares continued their downward trend, but categories like legal services, restaurants, and homes for the elderly saw significant increases.
3. Goods prices dropped on the heels of lower energy costs, but core goods (excluding food and energy) edged up slightly. We need to see further drops in goods prices to support overall inflation getting back to the Fed's 2% target. Draining of excess inventories should help accomplish that goal.
(per KPMG Economics)
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