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June 30 (UPI) — The Commerce Department reported on Friday that Personal Consumption Expenditures (PCE), the Federal Reserve’s preferred gauge of inflation, experienced a slight increase in May.
The overall PCE price index, which reflects consumer spending, rose by 0.1%. However, the core index, preferred by the Fed as it excludes volatile food and energy prices, rose by 0.3%.
PCE increased by 3.8% annually through May, while the core number rose 4.6% over the year.
In terms of wages, the Commerce Department reported that personal income and disposable personal income both grew by 0.4% month-on-month in May.
Regarding specific items, the index for new vehicles decreased by 0.4% month-on-month through May, while non-prescription drugs saw a 1.5% monthly increase.
The data on core PCE may be seen as positive news for the Federal Reserve, which aims to control inflation through increases in borrowing costs. Simultaneously, the rise in personal incomes could stimulate demand and support economic growth.
After deciding to keep rates unchanged earlier this month, Federal Reserve Chairman Jerome Powell testified before Congress that two more rate hikes may be necessary to cool the economy.
Speaking at a banking forum in Spain on Thursday, Powell stated that there is still a long way to go before inflation approaches the target rate of 2%.
Craig Erlam, a London-based senior market analyst for brokerage OANDA, mentioned in a research note that if inflation remains above target for an extended period, interest rates will continue to stay high. This, in turn, could pose a significant risk to the long-term economic trajectory.
Consumer inflation is currently running at about twice the Fed’s target rate.
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