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

PCE price index falls slightly below forecast, dampening investor outlook

“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%.

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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.

© 2023 Zenger News.com. Zenger News does not provide investment advice. All rights reserved.

Produced in association with Benzinga

Edited by Judy J. Rotich and Newsdesk Manager

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