- The US Federal Reserve’s measure of inflation decreased in May as a result of declining energy prices, although consumer prices rose 3.8%, the weakest annual growth since April 2021. The PCE index increased by 0.1% month over month.
- Food prices rose 0.1% while energy prices dropped 3.9%. The slight increase in household expenditure may have eased the strain on inflation. The Fed may raise rates once more at its meeting in late July but given the slowing pace of both core inflation and consumer growth, it is likely to be the last.
- Since core prices represent long-term patterns, the Federal Reserve is concentrating on them. Due to steep rises in rent, used cars, hotels, healthcare, and insurance, core inflation has eased but is still high. In order to evaluate their impact on the economy, the Fed halted its rapid interest rate increases in June.
- However, if core prices continue to rise, they will probably start hiking rates again in July. The 0.1% increase in consumer spending on goods and services last month points to lower inflation in the months to come.
- Due to significant pay increases brought on the COVID-related labor shortages, disposable personal income climbed by 0.4% in the first quarter. Record cash reserves, meanwhile, have been declining. Despite significant inflation and interest rate increases, consumer spending is still strong. In the first quarter, the economy expanded at a 2% annual rate.