The latest personal consumption expenditure (PCE) index—the Fed’s preferred inflation measurement—shows personal spending grew by 0.1% in May, marking the fifth consecutive month of increases after posting a revised 0.6% growth in April.
According to the Friday report, consumers spent more on services, healthcare and air travel in May while they pulled back their spending on goods. It also notes that the PCE price index rose 3.8% annually in May, down from a 4.3% YoY increase that emerged in April.
Core prices—everything except volatile food and energy—increased by 4.6% in May from a year earlier annually.
While there is still a ways to go before the Fed reaches its 2% benchmark, CNBC reports indicated that May’s PCE data is another favorable sign that inflation is moving in the right direction.
The latest Consumer Price Index (CPI) released in June showed that inflation hit its lowest levels in over two years at 4%.
That provided convincing evidence for the Fed heading into its June meeting, where officials opted to pause their rate hike campaign to evaluate the impact of their last 10 rate hikes.
While pundits and onlookers largely anticipated the decision, it was far from a permanent move, according to Fed officials who weren’t shutting the door on resuming rate hikes again this year. Following its June meeting, projections are that the Fed could raise rates another two times before the end of 2023.
“In determining the extent of additional policy firming that may be appropriate to return inflation to 2% over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments,” the Fed said in a June statement.
The next Fed meeting is set for July 25 – 26, giving officials time to evaluate the impact of its last 10 rate hikes, while assessing how to move forward for the rest of the year.
