US PCE Data June 2024: Inflation Pressures and Fed Policy Implications

June PCE Data: An In-Depth Look

At 20:30 Beijing time on Thursday, the US PCE data was released. The core PCE price index year-on-year for June recorded 2.8%, higher than the expected 2.70%. The previous value was revised from 2.70% to 2.8%. The core PCE price index month-on-month for June recorded 0.3%, in line with expectations, and higher than the previous value of 0.20%. The overall PCE index, including food and energy, rose 0.3% month-on-month and 2.6% year-on-year, both higher than market expectations of 0.23% and 2.5% respectively. The data also showed that the personal consumption expenditure price index rose 0.3% month-on-month, pushing the annual rate to 2.6%, the highest since February. Weaker spending was underpinned by a cooling labor market. Real disposable income was flat after falling in May, while wages and salaries barely rose. The July jobs report, due to be released on Friday, is expected to show continued slowing in hiring and a slight increase in the unemployment rate. The savings rate remained at 4.5%. Following the release of the US data series, spot gold saw little short-term volatility, and the US dollar index rose slightly in the short-term.

Expert Analysis and Potential Implications

"Fed mouthpiece" Nick Timiraos noted that core PCE inflation appears to be worsening, not better than when the Fed started cutting rates last year, and even worse by some measures. The 3-month annualized rate for June's core PCE price index was 2.6% (compared to 2.3% last year). Calculated on a 6-month annualized basis, the figure is 3.2% (compared to 3.3% last year). The June inflation data was driven by rising commodity prices, including household goods, sports equipment, and clothing, suggesting that import tariffs have been passed on to consumers to some extent. Last month's consumer price index also showed a sharp rise in the cost of common imported goods such as toys and appliances. A key indicator of service sector inflation, excluding energy and housing, rose 0.2% for the second consecutive month. This data completed the weakest quarterly growth in consumer spending since the COVID-19 pandemic. The increase in spending in June reflected a rebound in spending on non-durable goods. Purchases of durable goods fell for the third consecutive month - the longest consecutive decline since 2021 - and spending on services was moderate, indicating weak discretionary spending. Economists say inflation may face greater upside pressure as Trump is expected to outline a new round of tariffs on Friday, and the stock market rally keeps key PCE inputs high. The Fed's preferred core inflation gauge accelerated in June to one of its fastest paces this year, while consumer spending grew only slightly, highlighting the dueling forces facing policymakers on the path of interest rates. These data illustrate the tug-of-war in the economy, leading to a split among Fed officials in the monetary policy process. On the one hand, inflation progress has largely stalled, and Powell fears that Trump's tariffs will put greater upward pressure on prices. On the other hand, a weaker labor market has led to shrinking consumer spending, which could lead to a broader slowdown in the economy.

Impact on Fed Policy

The US June inflation data, slightly above expectations, added more variability to the Federal Reserve's timetable for cutting interest rates. Policymakers previously emphasized the need to see more evidence that inflation continues to return to the 2% target, and the latest data may delay this process. At the same time, unemployment benefit data showed stability in the United States. For the week ending July 26, initial jobless claims were 218,000, compared to 217,000 in the previous week. Continuing jobless claims were 1.95 million, the same as in the previous week. Last night, the Federal Reserve left interest rates unchanged for the fifth consecutive meeting, and Fed Chairman Powell said at a press conference that the labor market is stable, indicating no urgency to shift to a more accommodative monetary policy stance by cutting interest rates. However, what worries some economists is that the weakness of the labor market is hidden behind a strong appearance. Although the unemployment rate remains low, many workers report taking a long time to find a job and have difficulty finding opportunities.