 "US inflation cools in May; consumer spending rises marginally by 0.2% | World News")
In the 12 months through May, the personal consumption expenditures price index increased 2.6 per cent after advancing 2.7 per cent in April
Reuters WASHINGTON
US prices were unchanged in May while consumer spending rose moderately, a trend that could draw the Federal Reserve closer to start cutting interest rates this year.
The flat reading in the personal consumption expenditures (PCE) price index last month followed an unrevised 0.3 per cent gain in April, the Commerce Department’s Bureau of Economic Analysis said on Friday. In the 12 months through May, the PCE price index increased 2.6 per cent after advancing 2.7 per cent in April.
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Economists polled by Reuters had forecast the PCE price index unchanged on the month and rising 2.6 per cent year-on-year.
Inflation is receding after spiking in the first quarter as 525 basis points worth of rate hikes from the US central bank since 2022 cool domestic demand. Inflation, however, continues to run above the Fed’s 2 per cent target.
Excluding the volatile food and energy components, the PCE price index edged up 0.1 per cent last month. That followed an upwardly revised 0.3 per cent rise in April. The so-called core PCE price index was previously reported to have gained 0.2 per cent in April.
Core inflation increased 2.6 per cent year-on-year in May, the smallest advance since March 2021, after rising 2.8 per cent in April.
The Fed tracks the PCE price measures for monetary policy.
Monthly inflation readings of 0.2 per cent over time are necessary to bring inflation back to target. The Fed has maintained its benchmark overnight interest rate in the current 5.25 per cent-5.50 per cent range since last July. Though policymakers recently adopted a more hawkish outlook, financial markets expect the Fed to start its easing cycle in September.
Consumer spending, which accounts for more than two-thirds of US economic activity, increased 0.2 per cent last month after rising 0.1 per cent in April, the report also showed. Inflation fatigue, higher borrowing costs, a moderation in wage gains as well as dwindling savings are holding back spending.
Consumer spending slowed sharply in the first quarter, helping to restrict the economy to a 1.4 per cent annualised growth pace. The economy grew at a 3.4 per cent pace in the fourth quarter. Growth estimates for the second quarter are mostly below a 2 per cent rate.
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