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  • Alex Haseldine

US PCE Trends: Promising

Updated: Jul 1

May's numbers suggest that the recent bump in inflation has peaked as real spending cools down slightly. On the month core PCE was up 0.1%, and flat excluding shelter costs.

The 6-month annualised inflation rates were unchanged on the month at 3.2% and 2.8% respectively. Year on year core PCE is up 2.6%. The composite PMI output price index is currently at 53.6, consistent with 2% inflation.

PCE Services came down from 4.6% to 4.4% (6m annualised change), while the contributions from housing & utilities and healthcare have come down considerably.

If the PMI Services output prices are anything to go by, we should expect further progress in services inflation. Most of the increases in Services inflation can be attributed to rising costs of social care, now that the sharp rise in transportation services inflation (mostly auto insurance and repairs) seems to have run its course.

Real Consumption continues to grow steadily, with some signs of slowing (final chart).

Real consumption growth remains close to its post GFC trend: but with both goods and services spending cooling off slightly in recent months. Earnings reports from retailers suggest that lower income consumers in particular are becoming more cautious, which is leading to weaker volumes and price discounting. T

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