Key Fed Measure Shows YoY Inflation Rose 2.6% in May, Meeting Expectations

Income and Spending

Personal income saw a notable increase of $114.1 billion (0.5%) in May, while disposable personal income (DPI) rose by $94.0 billion (0.5%). When adjusted for inflation, real DPI also increased by 0.5%, indicating a genuine improvement in consumers’ purchasing power. In terms of spending, goods expenditures increased by $13.6 billion, with notable growth in nondurable goods like prescription drugs, offset partially by a decrease in gasoline and energy goods spending. Services spending rose by $34.2 billion, driven primarily by increases in health care, housing and utilities, and transportation services.

Consumer Actual vs. Estimated

While the report doesn’t provide explicit estimates for comparison, the accompanying news article suggests that the actual figures largely met economists’ expectations. The Core PCE year-over-year increase of 2.6% and the monthly increase of 0.1% both aligned with forecasts. This alignment indicates that inflation trends are evolving as anticipated by economic analysts.

Economic Implications

The May 2024 data presents a nuanced picture of the U.S. economy. The slight moderation in the year-over-year Core PCE from 2.8% in April to 2.6% in May suggests some progress in controlling inflation, though it remains above the Federal Reserve’s 2% target. The modest increases in personal income and spending, coupled with real PCE growth outpacing nominal PCE growth, indicate continued economic expansion, albeit at a more moderate pace than earlier in the year. The personal saving rate of 3.9% suggests that consumers are maintaining some level of financial prudence despite ongoing economic pressures. Overall, these figures reflect an economy that is growing steadily while grappling with inflationary pressures, presenting ongoing challenges for policymakers and consumers alike.