Fed’s preferred inflation gauge ticks higher in June

The Federal Reserve’s preferred gauge of inflation rose slightly in June, according to data from the Commerce Department released Friday. 

The personal consumption expenditures (PCE) price index rose 0.1 percent last month and 2.5 percent over last year. Core PCE, which excludes more volatile food and energy prices, was up 0.2 percent in June and 2.6 percent year-over-year. 

The Fed is set to meet next week. It has held interest rates steady at a range of 5.25 percent to 5.5 percent for the past year, as inflation has remained stubbornly above the central bank’s 2 percent target. 

After peaking at a 40-year high in mid-2022, inflation has eased significantly. However, recent inflation data has showed halting progress, especially in the first quarter of 2024. 

With several better inflation readings in the second quarter, Fed Chair Jerome Powell said earlier this month that the central bank is gaining more confidence inflation is sustainably moving toward 2 percent.

“I would say we didn’t gain any additional confidence in the first quarter, but the three readings in the second quarter … do add somewhat to confidence,” Powell said during remarks at The Economic Club in Washington, D.C., in mid-July.

Another measure of inflation, the consumer price index (CPI), has also shown further signs of easing in recent months. The CPI fell 0.1 percent in June, marking the first time that consumer prices have fallen month-to-month since the pandemic. 

At the same time, the labor market appears to be cooling, fueling hopes of interest rate cuts. The unemployment rate ticked up slightly to 4.1 percent in the June jobs report, and the Labor Department made significant downward revisions to April and May’s job gains.

Even as inflation is easing and the job market is cooling, the U.S. economy has remained remarkably strong. Gross domestic product grew at an annualized rate of 2.8 percent in the second quarter, coming in well above economists’ expectations, according to data released Thursday. 

President Biden touted Friday’s PCE report as a sign his administration is “making real progress fighting inflation.”

“Over the last year, inflation has come down to 2.5 percent at a time when the economy has grown 3.1 percent, we’ve created 2.6 million new jobs, and wages are rising faster than prices,” Biden said in a statement.

“The agenda that Vice President Harris and I are fighting for has helped us come back strong from the worst economic crisis since the Great Depression and deliver for working families,” he added, sharing the spotlight with his vice president, who is now the likely Democratic nominee for president.