The latest data shows that the cost of goods and services in the United States rose by a modest 0.2% in June, indicating a further easing of inflation. However, another measure of prices analyzed by the Federal Reserve suggests that progress in this area has been somewhat limited.
Economists surveyed by The Wall Street Journal had predicted a 0.2% increase in the personal consumption expenditures index, and the data revealed that this forecast was accurate. Furthermore, the figures show that the rate of price increases over the past year has slowed to 3% from 3.8% – the lowest level recorded since October 2021.
The core PCE rate of inflation, which excludes volatile food and energy costs and is considered by the Federal Reserve as a better indicator of future inflation trends, also rose by 0.2% in the previous month. Interestingly, the rate of core inflation over the past year has fallen to 4.1% from 4.6%, reaching its lowest point in more than two years. However, it still remains significantly above the Fed’s 2% target.
Big Picture
While inflation has slowed throughout this year due to declining energy and food prices, the overall cost of living continues to rise at a pace that is concerning for both the Federal Reserve and U.S. households. This persistent increase in living expenses has created financial challenges for many individuals and families.
In order to combat this issue, it is widely anticipated that the Federal Reserve will maintain high interest rates until next year, with the aim of reducing inflation and bringing it closer to its target of 2%. However, it is important to note that such a policy decision may have potential negative effects on the economy, potentially even leading to a recession.
Nevertheless, the recent PCE report provides some optimism for the Federal Reserve. The data indicates that inflation may be showing signs of slowing down, offering hope that the situation will continue to improve.
Market Reaction
Taking a look at the market reaction, it is expected that the Dow Jones Industrial Average (DJIA) and S&P 500 (SPX) will open higher on Friday. Additionally, the yield on the 10-year Treasury note (TMUBMUSD10Y) has slipped by 3.9.6%.
