One of the US Fed’s favoured measures of inflation is the change in the core personal consumption expenditures (PCE) price index. The core version strips out energy and food components, which are volatile from month to month, in an attempt to identify the prevailing trend. It’s not the only measure of inflation used; the Fed also tracks the Consumer Price Index (CPI) and Producer Price Index (PPI) from the Department of Labor.
The latest figures have been published by the Bureau of Economic Analysis as part of the May figures for its personal income and expenditures report. At 0.2% for the month, core PCE inflation was the same as April’s figure and in line with the +0.1% which was expected.
Market reaction was muted but bond yields finished a little higher while the USD was up a touch against the euro but steady against the yen and sterling. 2 year bond yields ticked up 1bp to 2.52% while 10 year yields gained 3bps to 2.87% and 30 year bond yields added 2bps to 2.99%.
On an annual basis, the index grew by 2.0%, which was as expected but a jump from April’s comparable figure of 1.8%. Annual core PCE inflation has been steadily moving higher since March after ranging between 1.3% and 1.6% for around a year. It is the first time since April 2012 the annual growth rate has hit the Fed’s 2.0% target.