Fed’s Preferred Inflation Gauge Falls to Lowest Level in 2 Years
July 28, 2023
Inflation showed further signs of cooling in June, as the Federal Reserve’s preferred inflation metric fell to the lowest level since 2021.
The personal consumption expenditures (PCE) price index increased by 3.0% in June as compared to a year earlier, according to the Commerce Department. That is a marked slowdown from May’s 3.8% annual increase and the lowest year-over-year increase since March 2021.
The so-called “core” PCE, which excludes volatile components like food and energy, also climbed 0.2% from the month before, but on an annual basis remains at an elevated 4.1%. This is only slightly lower than the 4.2% increase economists from Dow Jones had been expecting, but is the lowest annual increase since September 2021.
Fed officials prefer the PCE index to measure inflation over the more commonly cited CPI as PCE adjusts for changing behaviors from consumers.
A separate report from the Labor Department showed that wage gains cooled in the second quarter, which will take additional pressure off of inflation. Employers spent 4.5% more on wages and benefits during the period between April and June as compared to the same period last year. That is a slowdown from the first quarter’s 4.8% annual gain. The employment-cost index, a separate measure of compensation growth that the Fed closely monitors, also posted the smallest quarterly increase in two years.
Wage growth and inflation both remain elevated, the most recent figures represent a slowdown in price pressures that, if sustained throughout the coming months, would allow the Fed to hold rates steady at its next meeting in September and possibly beyond.