Key Fed inflation rate drops to lowest annual rate in nearly 2 years

Inflation showed signs of further decline in June, according to a gauge released by the Federal Reserve on Friday.

The personal consumption expenditure price index excluding food and energy rose only 0.2% from the previous month, in line with Dow Jones estimates. commerce department said,

So-called core PCE rose 4.1% from a year earlier, compared with estimates of 4.2%. The annualized rate was the lowest since September 2021 and recorded a contraction of 4.6% in May.

Headline PCE inflation, including food and energy costs, also rose 0.2% in the month and 3% on an annual basis. The annualized rate was the lowest since March 2021 and came down from 3.8% in May.

People shop at the Manhattan store on July 27, 2023 in New York City.

Spencer Platt | Getty Images

The price of goods actually decreased by 0.1% during the month while that of services increased by 0.3%. Food prices also declined by 0.1%, while energy prices rose by 0.6%.

Markets reacted positively The report noted that stock market futures are at an all-time high and Treasury yields are inching lower.

“Today’s economic releases confirm the current market story that inflation is easing and economic growth is continuing, creating a favorable environment for risk-on assets,” said George Matteo, Chief Investment Officer, Key Private Bank. “The Fed and investors will be relieved by these data as they suggest that inflation risks are waning and thus the Fed may now go on vacation and consider an extended pause regarding future interest rate hikes.”

The data corroborates other recent releases showing that, compared to rising inflation from at least a year ago, prices have begun to ease. like reading consumer price Index Inflation is showing a slow pick-up, while consumer expectations are also returning in line with long-term trends.

Fed officials follow the PCE index closely because it adjusts to the changing behavior of consumers and provides a different look at price trends than the more widely cited CPI.

Along with the inflation figures, the Commerce Department said personal income rose 0.3% while spending rose 0.5%. The income was a little less than expected, while the expenditure was fine.

The report comes just two days after the Fed’s announcement quarter percentage point interest The rate hike is the 11th since March 2022 and the first since it skipped the June meeting. This took the central bank’s key lending rate to its target range of 5.25%-5.5%, its highest level in more than 22 years.

After the hike, the Fed chairman Jerome Powell It was emphasized that future decisions on rate changes would be based on incoming data rather than a predetermined course on policy. Central bank officials generally believe that despite recent positive trends, inflation is still too high and want to see several months of solid data before changing direction.

A separate indicator closely followed by the Fed showed compensation costs rose a seasonally adjusted 1% on an annual basis during the second quarter. he to read employment cost index 1.1% was slightly below the estimate.

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