US PCE inflation drops to 3% in June

July 28, 2023 ( MLN): The U.S. personal consumption expenditure (PCE) for the month of June 2023 clocked in at 3% YoY, compared to 3.8% YoY in May, the latest data issued by the U.S. Bureau of labor statistics on Friday showed.

Whereas, in the last year, in June 2022, the PCE was 6.8% YoY.

PCE on yearly basis dropped to lowest level since April 2021.

On a sequential basis, US PCE went up by 0.2% MoM, higher than the 0.1% MoM increase in the previous month.

PCE is the preferred measure of inflation of the Federal Reserve, with the main focus on core PCE, which excludes food and energy prices, to see if it meets its target of below 2%.

Core PCE stood at 4.1% YoY, as compared to 4.6% in the previous month, and lower than analyst's expectations of 4.2%.

Core PCE YoY was lowest since October 2021.

It is worth noting that the YoY number at 3% may look impressive, but it is only this low because it is compared to the peak of 6.8% in the same month last year. This is what economists call “base effects”.

It is likely that inflation in the coming months could edge up slightly, as comparisons to last year become less and less favorable as we move forward, as inflation started to decline from June 2022.

Moreover, core inflation is still at 4.1%, way above the Fed’s 2% goal.

PCE is an indicator of inflation, which measure the prices that people living in the United States, or those buying on their behalf, pay for goods and services.

The PCE price index is known for capturing inflation (or deflation) across a wide range of consumer expenses and reflecting changes in consumer behavior.

PCE is released each month, whereas, quarterly and annual data are included in the GDP release.

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