Key facts
- U.S. inflation, measured by the PCE Price Index, slowed to a 3.7% annual increase in June.
- The monthly PCE Price Index saw a 0.1% decrease in June.
- Core PCE inflation, excluding food and energy, rose 3.3% year-over-year.
- The Federal Reserve maintained its benchmark interest rate at 3.50%-3.75%.
- Renewed Middle East conflict is expected to increase oil prices, potentially impacting inflation.
- Consumer spending and personal income saw modest increases in June.
U.S. inflation showed signs of slowing in June, with the Personal Consumption Expenditures (PCE) Price Index increasing 3.7% year-over-year, down from 4.1% in May. This moderation was attributed to a temporary retreat in oil prices. However, renewed hostilities in the Middle East are expected to drive oil prices higher, potentially reversing the disinflationary trend.
The PCE Price Index itself slipped 0.1% month-over-month, the weakest reading since April 2020. Core PCE inflation, which excludes volatile food and energy components, rose 3.3% annually and 0.1% monthly. These figures were included in the second-quarter gross domestic product estimate.
The Federal Reserve, which uses PCE measures for its 2% inflation target, kept its benchmark overnight interest rate unchanged at 3.50%-3.75%. Despite this, three policy-setting members dissented, advocating for a rate hike. Fed Chairman Kevin Warsh reiterated the central bank's commitment to combating inflation.
Economists anticipate the Fed may raise borrowing costs as early as September. The impact of high inflation has been partially offset by tax refunds, but this support is diminishing, suggesting a slowdown in consumer spending for the latter half of the year. Consumer spending increased by 0.3% in June, and personal income rose by 0.2%. The personal saving rate declined to 2.7%, its lowest point since June 2022.