Just tonight! U.S. inflation cooling or will meet key milestones Can PCE data bring surprises?

Finance Associated Press

2024-06-28 09:58The official account of Cailianpress, a subsidiary of Shanghai Poster Group

Finance Associated Press, June 28 (Editor Liu Rui) Tonight, the Federal Reserve's favorite inflation indicator, the U.S. core personal consumption expenditures price index (PCE) for May, will be released.

Economists expect tonight's PCE data to be a milestone on the road to cooling inflation in the US: since the US core PCE measure topped 2% for the first time in March 2021, this month's data will be the lowest in 38 months.

Another milestone on the road to cooling inflation in the United States?

According to Dow Jones' forecast, the overall PCE in the United States is expected to increase by 0% month-on-month in May, while the core PCE is expected to rise by 0.1% month-on-month; This compares with 0.3% and 0.2% month-on-month increases in April, respectively. In the United States, both the headline PCE and core PCE are expected to rise by 2.6% year-on-year in May.

If market expectations are to be believed, this will be a milestone month for the U.S. PCE series data: the U.S. PCE in May will be broadly unchanged from the previous month – the first time since November 2023. But more importantly, after stripping out volatile food and energy prices, the US core PCE rose just 2.6% year-on-year in May, which would be the lowest since March 2021.

For economists who are highly concerned about the US macroeconomy, March 2021 will be a familiar date – the time when the US core PCE data exceeded the 2% inflation target for the first time in the current economic cycle.

In March 2021, the U.S. core PCE index rose 2.25% year-on-year, breaking the 2% threshold target for the first time in this economic cycle, which also became the starting point for the accelerated surge in U.S. inflation. Since this point in time, US inflation has soared, and even the core PCE index has reached an annual rate above 5.5%, which has also forced the Federal Reserve to make a series of aggressive and large interest rate hikes. But so far, the Fed has not brought this indicator back below the 2% threshold.

If tonight's US core PCE data for May is indeed in line with expectations, it will be a key milestone on the road to cooling inflation in the US.

U.S. inflation data is expected to cool

Beth Ann Bovino, chief economist at Bank of America, said: "Our forecast is consistent that the core price (PCE) data for personal consumption expenditures will be weak... This is good news for the Fed. It's also good for people's wallets, although I don't know if people can feel it. ”

Indeed, while US inflation has fallen sharply from its peak in mid-2022, the price level does not appear to be the same for consumers. Core personal consumption expenditures in the U.S. have risen by 14% since March 2021, which has also significantly harmed the quality of life of U.S. consumers.

Despite the notable progress in cooling inflation in the U.S. since March 2022, when the Fed began raising interest rates, Fed officials are not ready to declare victory. Earlier this week, Fed Governor Lisa Cook had said: "The goal of a sustainable return to 2% inflation is an ongoing process, not a fait accompli." ”

In recent days, a number of Fed officials have expressed their caution about the timing and pace of interest rate cuts. However, most officials have also stressed that interest rate cuts are likely sometime this year as long as the cooling trend in US inflation data is in line with expectations.

The market is more optimistic than the Fed

At this month's Fed decision, the Fed's dot plot shows that it is expected to cut interest rates only once this year. However, the market is still more optimistic: for now, futures market trends suggest that the Fed is likely to cut rates by 25 basis points for the first time in September and again by the end of the year.

BofA's Bovino said: "We do expect the U.S. real economy to soften — not all at once, just softly — which suggests that inflation will also soften later on." This gives us reason to expect that the Fed could cut interest rates for the first time in September. "

"Now we all know it's up to the data, and the Fed is still watching," she added, "Can they wait?" Will there be only one rate cut this year? I can't rule out the possibility. But it looks like the numbers could provide an excuse for the Fed to cut rates twice this year. ”

(Finance Associated Press, Liu Rui)

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