USD Retreats Lower After Stable June PCE Inflation

Today, all attention was focused on the Personal Consumption Expenditures (PCE) index, the Federal Reserve’s preferred inflation gauge, which came slightly above expectations, but nothing to change market expectations regarding the FED. After a challenging week, risk assets were seeking some relief, with commodity currencies retracing higher.

The monthly PCE price index was expected to show a 0.2% increase for both headline and core readings, which came as expected for the rounded number, but the unrounded monthly PCE came in at 1.88%. The annual forecast for both was pegged at 2.5%, but the actual data came in slightly higher at 2.6%. This suggests that the disinflationary trend in the United States continues to take hold, albeit at a slow pace. The slight uptick to 2.6% in the core annual rate is not seen as a major setback for the Federal Reserve, as it aligns with expectations that there may be fluctuations along the way.

US PCE, Personal Income and Personal Consumption for June 2024

• Core PCE Year-over-Year: The Core Personal Consumption Expenditures (PCE) index, a key measure of inflation, remained at 2.6% year-over-year, slightly above the 2.5% forecast. This figure matches the prior month’s rate, indicating steady inflation pressures.
• Core PCE Month-over-Month: The Core PCE rose by 0.2% on a monthly basis, compared to an expected increase of 0.1%. However, the unrounded figure was slightly lower, at 0.188%.
• PCE Overall Inflation: The overall PCE index showed a 0.1% increase month-over-month, aligning with expectations, but the unrounded number was just under 0.1%, at 0.0788%. Year-over-year, the PCE index rose by 2.5%, consistent with forecasts and down slightly from the previous month’s 2.6%.
• Personal Income and Spending: Personal income grew by 0.2%, below the anticipated 0.4%. The previous month’s growth was revised down to 0.4% from an initial 0.5%. Wages and salaries specifically increased by 0.3%. Personal spending also rose by 0.2%, compared to a revised 0.4% increase in the prior month.
• Savings Rate: The savings rate was recorded at 3.4%, a slight decrease from 3.5% in the previous month, indicating a modest dip in the proportion of disposable income being saved.
• Inflation Rates: The annualized inflation rate over the last three months was 2.3%, down from 2.9% previously. The annualized six-month rate for core PCE came in at 3.4%, up from 3.3%, highlighting a persistent inflation trend over the half-year period.

The core PCE inflation was a bit higher than expectations which is congruent with the core PCE data released yesterday through the GDP report. The Fed pricing sees 67 basis points of cut by the end of the year with a cut in September priced in. That is little changed from pre-release levels.