June saw a modest increase in U.S. prices as the cost of goods declined and the cost of services rose, highlighting a better inflation environment that may pave the way for the Federal Reserve to start reducing interest rates in September.
Consumer spending somewhat decreased last month, according to the Commerce Department's data released on Friday. Fed officials may become more confident that inflation is heading towards the 2% objective set by the US central bank if they observe indications of a slowing labour market and diminishing pricing pressures. The Fed's next policy meeting is scheduled for July 30-31.
"The key question now is whether the positive momentum we've seen over the last three months will be disrupted heading into the September meeting," said Olu Sonola, head of U.S. economic research at Fitch Ratings. "With one eye on recent labor market developments, the Fed is now likely to use the meeting next week to set the stage for a September rate cut."
After remaining steady in May, the personal consumption expenditures (PCE) price index increased by 0.1% last month, according to a report from the Bureau of Economic Analysis of the Commerce Department.
The PCE inflation rise was predicted by experts and came as expected. Prices for goods fell by 0.2% following a 0.4% decline in May. The cost of cars and their parts decreased by 0.6%. Prices for durable household appliances and furnishings fell for a third consecutive month, but the cost of other long-lasting manufactured products increased by 1.8%.
Following a 3.4% decline in May, the price of petrol and other energy-related items fell by 3.5%. For a second consecutive month, there were discounts on apparel and footwear.
However, the 0.2% increase in service costs matched May's gain. Costs for housing and utilities increased by 0.2%, the least amount since March 2023, following a 0.4% increase in May. One of the main factors contributing to inflation has been rent. Costs for insurance and financial services increased by 0.3%.
On the other hand, transport service prices decreased for a third consecutive month. Through June of this year, the PCE price index increased by 2.5%. This was the lowest year-over-year increase in four months, coming after a 2.6% increase in May.
With food and energy out of the picture, the PCE price index increased by 0.2% in the previous month. Prior to rounding, the so-called core PCE inflation rise was 0.182%.
The unrounded number for May was changed from the previously released 0.083% to 0.127%. Core PCE inflation for April was revised up from the initial estimate of 0.259% to 0.261%.
The second quarter's core inflation growth was rather greater than anticipated, which may be explained by these higher adjustments.
Core PCE inflation increased 2.6% in the 12 months ending in June, mirroring May's increase. In the three months ending in June, core inflation grew at an annualised rate of 2.3%, a significant decrease from the 2.7% rate in May.
For monetary policy purposes, the Fed monitors PCE pricing measures.
"The much-improved inflation readings indicate that the flare up in inflation in the first quarter was temporary," said Kathy Bostjancic, chief economist at Nationwide. "Moreover, if rental inflation has finally decelerated as recent data suggest, then inflation looks to be back on a sustained downward trend."
In reaction to the Fed's strong monetary policy tightening in 2022 and 2023, demand in the economy has decreased. In the first half of this year, economic growth averaged 2.1%, but in the second half of 2023, it was 4.2%.
Wall Street stocks were rising in value. In addition to the dollar's small decline versus a basket of currencies, U.S. Treasury rates also decreased.
Since last July, the Fed has kept its benchmark overnight interest rate within the current range of 5.25% to 5.50%. Since 2022, it has increased its policy rate by 525 basis points.
Financial markets are projecting three rate reductions this year, beginning in September, due to declining inflation and improving labour market circumstances.
According to the study, consumer spending—which makes up over two-thirds of the U.S. economic activity—rose by 0.3% in May following an upwardly revised 0.4% advance in the previous month. It was earlier stated that May spending increased by 0.2%. Additionally, data for April was revised upward.
The 0.4% gain in services last month drove spending, which was led by rises in foreign travel, financial services and insurance, housing and utilities, and healthcare.
In the second part of June, a hack at software systems supplier CDK disrupted operations at multiple car dealerships, resulting in a 0.1% increase in goods outlays.
Service station earnings were negatively impacted by lower petrol prices as well. However, expenditure increased on nondurable items like pharmaceuticals and other medical supplies.
After increasing by 0.4% in May, consumer expenditure increased by 0.2% when inflation was taken into account.
As the labour market becomes more flexible and wage growth slows down simultaneously, consumer spending is probably going to stay moderate. Still, the economy would most likely be able to continue at this rate.
After increasing by 0.4% in May, personal income increased by 0.2% in June. After accounting for taxes and inflation, family income increased by 0.1% in May, forcing consumers to take out of savings and reduce their own savings.
After increasing by 0.6% in May, wages increased by 0.3%. The savings rate's previously stated gradual increase over the preceding months was removed. From 3.5% in May, the saving rate fell to 3.4%, the lowest since December 2022.
Economists at Bank of America Securities calculated that surplus savings amassed during the COVID-19 epidemic amounted to around $400 billion, and they predicted that these funds would persist until the end of the year at the present rate of depletion.
According to Citigroup analyst Veronica Clark, "rising savings had suggested consumers were pulling back on spending and saving more for possibly precautionary reasons."
"However, total expenditure appears to be slowing down despite lower than anticipated revenue. In fact, a very low savings rate would point to the possibility of an even more dramatic reduction in expenditure when the labour market contracts."
(Source:www.gdonline.com)
Consumer spending somewhat decreased last month, according to the Commerce Department's data released on Friday. Fed officials may become more confident that inflation is heading towards the 2% objective set by the US central bank if they observe indications of a slowing labour market and diminishing pricing pressures. The Fed's next policy meeting is scheduled for July 30-31.
"The key question now is whether the positive momentum we've seen over the last three months will be disrupted heading into the September meeting," said Olu Sonola, head of U.S. economic research at Fitch Ratings. "With one eye on recent labor market developments, the Fed is now likely to use the meeting next week to set the stage for a September rate cut."
After remaining steady in May, the personal consumption expenditures (PCE) price index increased by 0.1% last month, according to a report from the Bureau of Economic Analysis of the Commerce Department.
The PCE inflation rise was predicted by experts and came as expected. Prices for goods fell by 0.2% following a 0.4% decline in May. The cost of cars and their parts decreased by 0.6%. Prices for durable household appliances and furnishings fell for a third consecutive month, but the cost of other long-lasting manufactured products increased by 1.8%.
Following a 3.4% decline in May, the price of petrol and other energy-related items fell by 3.5%. For a second consecutive month, there were discounts on apparel and footwear.
However, the 0.2% increase in service costs matched May's gain. Costs for housing and utilities increased by 0.2%, the least amount since March 2023, following a 0.4% increase in May. One of the main factors contributing to inflation has been rent. Costs for insurance and financial services increased by 0.3%.
On the other hand, transport service prices decreased for a third consecutive month. Through June of this year, the PCE price index increased by 2.5%. This was the lowest year-over-year increase in four months, coming after a 2.6% increase in May.
With food and energy out of the picture, the PCE price index increased by 0.2% in the previous month. Prior to rounding, the so-called core PCE inflation rise was 0.182%.
The unrounded number for May was changed from the previously released 0.083% to 0.127%. Core PCE inflation for April was revised up from the initial estimate of 0.259% to 0.261%.
The second quarter's core inflation growth was rather greater than anticipated, which may be explained by these higher adjustments.
Core PCE inflation increased 2.6% in the 12 months ending in June, mirroring May's increase. In the three months ending in June, core inflation grew at an annualised rate of 2.3%, a significant decrease from the 2.7% rate in May.
For monetary policy purposes, the Fed monitors PCE pricing measures.
"The much-improved inflation readings indicate that the flare up in inflation in the first quarter was temporary," said Kathy Bostjancic, chief economist at Nationwide. "Moreover, if rental inflation has finally decelerated as recent data suggest, then inflation looks to be back on a sustained downward trend."
In reaction to the Fed's strong monetary policy tightening in 2022 and 2023, demand in the economy has decreased. In the first half of this year, economic growth averaged 2.1%, but in the second half of 2023, it was 4.2%.
Wall Street stocks were rising in value. In addition to the dollar's small decline versus a basket of currencies, U.S. Treasury rates also decreased.
Since last July, the Fed has kept its benchmark overnight interest rate within the current range of 5.25% to 5.50%. Since 2022, it has increased its policy rate by 525 basis points.
Financial markets are projecting three rate reductions this year, beginning in September, due to declining inflation and improving labour market circumstances.
According to the study, consumer spending—which makes up over two-thirds of the U.S. economic activity—rose by 0.3% in May following an upwardly revised 0.4% advance in the previous month. It was earlier stated that May spending increased by 0.2%. Additionally, data for April was revised upward.
The 0.4% gain in services last month drove spending, which was led by rises in foreign travel, financial services and insurance, housing and utilities, and healthcare.
In the second part of June, a hack at software systems supplier CDK disrupted operations at multiple car dealerships, resulting in a 0.1% increase in goods outlays.
Service station earnings were negatively impacted by lower petrol prices as well. However, expenditure increased on nondurable items like pharmaceuticals and other medical supplies.
After increasing by 0.4% in May, consumer expenditure increased by 0.2% when inflation was taken into account.
As the labour market becomes more flexible and wage growth slows down simultaneously, consumer spending is probably going to stay moderate. Still, the economy would most likely be able to continue at this rate.
After increasing by 0.4% in May, personal income increased by 0.2% in June. After accounting for taxes and inflation, family income increased by 0.1% in May, forcing consumers to take out of savings and reduce their own savings.
After increasing by 0.6% in May, wages increased by 0.3%. The savings rate's previously stated gradual increase over the preceding months was removed. From 3.5% in May, the saving rate fell to 3.4%, the lowest since December 2022.
Economists at Bank of America Securities calculated that surplus savings amassed during the COVID-19 epidemic amounted to around $400 billion, and they predicted that these funds would persist until the end of the year at the present rate of depletion.
According to Citigroup analyst Veronica Clark, "rising savings had suggested consumers were pulling back on spending and saving more for possibly precautionary reasons."
"However, total expenditure appears to be slowing down despite lower than anticipated revenue. In fact, a very low savings rate would point to the possibility of an even more dramatic reduction in expenditure when the labour market contracts."
(Source:www.gdonline.com)
