The Federal Reserve’s preferred measure of underlying US inflation decelerated in May, bolstering the case for lower interest rates later this year.
The so-called core personal consumption expenditures price index, which strips out volatile food and energy items, increased 0.1% from the prior month. That marked the smallest advance in six months. On an unrounded basis, it was up just 0.08%, the least since November 2020.
From a year ago, it rose 2.6%, the least since early 2021, according to Bureau of Economic Analysis data out Friday.
Inflation-adjusted consumer spending rose 0.3%. Nominal incomes rose 0.5%.
Stock futures extended gains while Treasury yields fell.
The report offers welcome news for Fed officials seeking to commence with rate cuts in the coming months. They recently dialed back their projections for rate cuts this year following worse-than-expected inflation data in the first quarter.
Central bankers pay close attention to services inflation excluding housing and energy, which tends to be more sticky. That metric increased 0.1% in May from the prior month, according to the BEA, the least since October.
Household demand has so far remained resilient even as borrowing costs have taken a toll on some sectors of the economy. The report showed inflation-adjusted outlays for services rose 0.1%, driven by airfares and health care. Spending on merchandise advanced 0.6%, led by computer software and vehicles.
Despite some signs of cooling in the labor market, solid wage growth continues to power consumer spending. Wages and salaries rose 0.7%. On an inflation-adjusted basis, real disposable income jumped 0.5%, the most since January 2023, after a flat reading in April.
The saving rate rose to 3.9%, the highest level since the start of the year.
A monthly government report on employment, due July 5, will offer the latest insight on how income growth is holding up.
This article was provided by Bloomberg News.