US May Core Inflation Moderates To 4.6%, Easing Rate Hike Expectations

Chart showing Market Reactions Following PCE Data. The U.S. dollar index (DXY), which is tracked by Invesco DB USD Index Bullish Fund ETF dipped 0.3%.  SHUTTERSTOCK

“The Core Personal Consumption Expenditure (PCE) price index, the Federal Reserve’s preferred measure of inflation, rose 4.6% year-over-year in May 2023, slightly down from both the previous and expected 4.7%,” said the U.S. Bureau of Economic Analysis on Friday.

“The headline measure of the PCE inflation, which includes energy and food, rose 3.8%, well below the previous 4.3% increase but in line with estimates,” said BEA.

The slightly cooler-than-expected inflation release partially lowered market expectations for a more aggressive Fed rate hike path. Investors are pricing in a 25-basis-point hike in July with an 86% probability, down from 90% before the release, and a further increase in September with a 20% chance, down from 25%.

Leslie Ames uses a calculator to ring up a customer’s purchase at Goldie in 2014 in Florida. The Bureau of Economic Analysis says personal spending ticked by 0.1% up in May from the previous month, slowing from the 0.8% prior surge. JOE RAEDLE/GETTY IMAGES

“Personal spending ticked by 0.1% up in May from the previous month, slowing from the 0.8% prior surge and falling short of the expected 0.2% advance,” said the BEA.

Key Data From May PCE Inflation Report

• The U.S. PCE price index advanced at a 3.8% annual pace in May, declining from the 4.3% surge in the previous month. The print was in line with the expected 3.8% increase.
• Prices for goods decreased by 0.1% monthly while prices for services increased by 0.3%. Food costs rose by 0.1% while energy prices decreased by 3.9%.
• Every month, PCE inflation surged 0.1%, matching expectations but slowing from the 0.4% rise in April.
• The Core PCE price index rose by 4.6% annually in May, below the expected 4.7% increase.
• Core PCE inflation advanced at a 0.3% monthly pace, in line with forecasts but slowing down from 0.4% in April.

The U.S. dollar index (DXY), which is tracked by Invesco DB USD Index Bullish Fund ETF dipped 0.3%.

The policy-sensitive two-year Treasury yield fell by 5 basis points from 4.91% to 4.86%. On Thursday, yields on two-year notes surged by 15 basis points.

Futures on the S&P 500 Index, which is tracked by the SPDR S&P 500 ETF Trust, surged 0.6%, ahead of Wall Street’s opening bell.

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Edited by Judy J. Rotich and Newsdesk Manager