June PCE Inflation Gauge Falls Slightly, Still Above Fed Target

The Commerce Department said the personal consumption expenditures (PCE) price index fell 0.1% on a monthly basis in June and was up 3.7% from a year earlier, matching economists’ expectations. Core PCE, which excludes food and energy, rose 0.1% month-over-month and 3.3% annually, slightly below the 0.2% monthly gain forecast but in line with the annual outlook.

Federal Reserve officials continue to monitor the headline PCE figure as they aim to bring inflation back to the long-run 2% target, while viewing core data as a more reliable gauge. Compared with May, headline PCE dropped from 4.1% to 3.7% and core PCE slipped from 3.4% to 3.3%.

Goods prices were 3% higher year-over-year in June, while services prices rose 2.3% over the same period. The personal savings rate edged down to 2.7% of disposable income in June from 2.8% in May.

"June's in-line PCE report did not show the same cooling reflected in the CPI report earlier this month," said Bret Kenwell, a U.S. investment analyst at eToro. He added that the data precedes a recent rebound in energy prices, which could increase inflation pressure later in the summer.

"Despite moderating inflation, strong domestic activity across consumption and business investment will keep the Fed diligent about the risks overheating could have on the inflation trajectory," said Ellen Zentner, chief economic strategist for Morgan Stanley Wealth Management. She said the Fed is likely to remain patient while awaiting further data.