In line with market expectations, the US Personal Consumption Expenditures (PCE) inflation rate rose by 2.6% in May 2024 compared to the previous year, marking the lowest increase in three months, according to a report by MIDF Investment Bank (MIDF).
Headline inflation, which includes food and energy prices, remained flat monthly but also showed a 2.6% annual increase, consistent with expectations. Notably, energy prices surged by 4.8% year-on-year, the sharpest growth over a year, while food inflation slowed to a nearly three-year low of 1.2%.
Goods prices saw a slight decline of 0.1% year-on-year, the first drop in three months, whereas service inflation eased slightly to 3.9% from April’s 4.0%. Core PCE inflation, which excludes food and energy and is closely watched by the Federal Reserve, decelerated to 2.6%, the lowest since March 2021.
Every month, PCE prices remained unchanged, with core PCE inflation increasing by 0.1%, both within market expectations. This moderation in core inflationary pressure aligns with a rising jobless rate, which hit 4.0% in May 2024, the highest since January 2022, and a decline in consumer sentiment, with the University of Michigan’s index dropping to a seven-month low of 68.2.
MIDF anticipates that the continued easing of the Fed’s preferred inflation gauge suggests a potential policy rate reduction in the latter half of 2024. However, the timing remains uncertain as inflation is still above the Fed’s 2% target.
