A key inflation measure tracked by the US Federal Reserve increased at a rapid pace in June, while consumer spending showed minimal growth. This divergence underscores the challenges facing policymakers as they navigate the future path of interest rates. The core personal consumption expenditures (PCE) price index, which excludes volatile food and energy prices, rose by 0.3 per cent in June, according to data released by the Bureau of Economic Analysis. On an annual basis, the index advanced 2.8 per cent.
This annual increase from June 2024 indicates limited progress in controlling inflation over the past year. Inflation-adjusted consumer spending saw a slight increase last month, following a decline in May. These figures highlight the conflicting economic signals that are currently dividing Federal Reserve officials regarding monetary policy decisions.
Underlying the sluggish spending is a softening labour market. Real disposable income remained flat, mirroring a decline in May, while wages and salaries experienced only marginal growth. The savings rate remained steady at 4.5 per cent. The jobs report for July is expected to reflect a continued moderation in hiring activity and a slight increase in the unemployment rate, further complicating the economic outlook.
The latest economic data paints a mixed picture, with persistent inflation and tepid consumer spending creating uncertainty for the Federal Reserve as it considers future monetary policy adjustments.
