Inflationary pressures eased in May, aligning with expectations, as the Federal Reserve’s preferred inflation gauge also showed stronger than expected income growth, according to the latest data from the Bureau of Economic Anlysis.
No Rise: The Personal Consumption Expenditure (PCE) Index, showed prices holding steady in May. This marks a notable slowdown from the 0.3% rise recorded in April, hitting the lowest level since November 2023. Consequently, the annual PCE index decelerated to 2.6% in May, down from 2.7% in the prior two months, and the lowest level since February.
- Core PCE prices, which exclude volatile food and energy costs, rose by a modest 0.1% in May, down from the 0.3% increase observed in April, marking the lowest level since November. On an annual basis, the core index fell to 2.6% in May, down from 2.7% the previous month, and the lowest level since March 2021.
- These figures were in line with economists’ expectations and mirrored trends seen in the Consumer Price Index (CPI) report earlier this month.
Income & Spending: Personal income saw a substantial rise of 0.5% in May, up from the 0.3% increase in April, marking the biggest monthly gain since January. This was better than the 0.3% rise economists had anticipated.
- Meanwhile, personal spending increased by 0.2% in May, up from a 0.1% rise in April but below the 0.3% rise that economists were expecting.
Best Case Scenario: The combination of slowing inflation and rising income is an ideal scenario for the economy. It indicates that consumers have more purchasing power without the accompanying pressure of rising prices. This balance could support economic growth without prompting the Federal Reserve to implement more aggressive interest rate hikes. The latest data suggest that inflationary pressures are gradually easing, providing a more stable environment for consumers and businesses.
