A report released by the Commerce Department on Friday indicates that inflation pressures saw a slight alleviation in May, as a significant slowdown in consumer spending was observed.
The Federal Reserve pays close attention to the personal consumption expenditures price index, which rose by 0.3% for May, excluding food and energy. This rise was on par with the estimate provided by Dow Jones. The so-called core PCE recorded a 4.6% increase from the previous year, which was 0.1 percentage point lower than anticipated.
For comparison, in April, the index experienced a 0.4% increase for the month, and a 4.7% rise from the same period in the preceding year.
Inflation, when accounting for the fluctuating components of food and energy, was notably milder—just a 0.1% increase for the month, and a 3.8% rise from the previous year. These figures represent a decline from the 0.4% and 4.3% increases respectively reported for April.
Although inflation slightly eased, consumer spending experienced only a 0.1% increase for May, falling below the projected 0.2%, and markedly lower than the 0.6% rise in April. This slowdown in spending occurred despite personal income witnessing a 0.4% surge, surpassing the 0.3% estimate.
While inflation trends appear to be heading towards a favorable direction according to the data released on Friday, it still significantly surpasses the Fed's long-term target of 2%. Jerome Powell, Chairman of the Central Bank, stated earlier this week that achieving this target might take several more years.
At a meeting earlier in June, Fed officials suggested they foresee at least two more quarter-point hikes in the interest rate by year's end. Raphael Bostic, the President of the Atlanta Fed, who opposes further increases, also commented that he doesn't foresee any cuts either this year or in 2024.
According to calculations by the CME Group, traders believe there's roughly an 87% chance that the Fed will approve a quarter-point increase at their July meeting. These odds remained fairly stable after the release of Friday's data.