The Commerce Department is set to release a key economic report on Friday that could bring some positive news on inflation. The personal consumption expenditures price index, closely monitored by the Federal Reserve, is expected to show little to no monthly increase for May. This would be the first time since November 2023.
Moreover, the core PCE price index, which excludes volatile food and energy prices and is closely watched by Fed policymakers, is anticipated to show its lowest annual reading since March 2021. This marks a significant milestone as March 2021 was when core PCE first surpassed the Fed’s 2% inflation target during this cycle.
Analysts are forecasting that the headline PCE price reading will remain flat for the month, while the core is expected to increase by 0.1%. Compared to April’s increases of 0.3% and 0.2% respectively, these numbers indicate a potential slowdown in inflation. Both headline and core are projected to be at 2.6% on a year-over-year basis.
Chief economist Beth Ann Bovino from U.S. Bank commented on the forecasts, stating that the softening of core PCE pricing data is good news for both the Fed and consumers. Despite the significant increase in prices since March 2021, there has been a noticeable decline in the rate of inflation. However, Fed officials remain cautious and emphasize that sustaining inflation at the 2% target is an ongoing process.
Fed Governor Lisa Cook mentioned that returning inflation to the target range is not guaranteed and will require continued monitoring of economic data. While there is speculation about potential rate cuts later this year, policymakers are waiting for the data to support such decisions. Futures markets are currently pricing in the likelihood of a quarter-percentage-point cut in September, with another cut expected by the end of the year.
In addition to the inflation numbers, the Commerce Department will also release figures on personal income and consumer spending on Friday. Estimates suggest a rise of 0.4% in personal income and 0.3% in consumer spending. These additional data points will provide further insights into the state of the economy and could influence future monetary policy decisions by the Federal Reserve.