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US PCE inflation cools as expected

But firm spending on goods like software and autos raises doubts that the inflation battle has yet been won.

28 June 2024

US core personal consumption expenditure (PCE) inflation softened slightly to 2.6% on the previous year, down from 2.8% last month. This measure of inflation, which strips out volatile food and energy, has over the years been the Federal Reserve's (Fed) favourite gauge of price movements. But any hope that the latest print was going to signal a clear pathway to loosening monetary policy is likely to be tempered given the movement of the underlying components of the measure. While transportation and healthcare are showing some signs of cooling, spending on goods such as software and autos was firm. The Fed can take some solace that the year-on-year number is at least lower, but for inflation to properly get down to the target 2% level the US consumer will need to spend less.

If you squint you can see some potential weakness in said consumers' balance sheets, for example in non-mortgage indebtedness, and this is now reflecting in some deferral of big-ticket purchases as per the Michigan sentiment surveys. But right now it is too early to say that this will be what finally conquers inflation the coming months. The Fed will now need to wait for (yet) more data and try to restrain itself from making bold statements about the likely path of inflation and monetary policy that will only make it a hostage to fortune in the future.

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Julian Howard

Chief Multi-Asset Investment Strategist
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