Jun 30, 2023 - Economy

Fed's preferred inflation gauge cools alongside consumer spending slowdown

Courtenay Brown

Shoppers crossing a street holding shopping bags — Shoppers in Union Square in San Francisco, Calif. Photo: David Paul Morris/Bloomberg via Getty Images

Some heat came off the U.S. economy in May, government data released on Friday showed: Consumer spending slowed, while a key inflation measure cooled.

By the numbers: The personal consumption expenditures price index, the Federal Reserve's preferred measure of inflation, increased 3.8% from the same month a year ago — the lowest annual change in two years, and down from 4.3% registered the prior month.

On a monthly basis, the index rose more slowly. In May it rose 0.1%, compared to 0.4% in the prior month.
That means personal income, taking inflation into account, rose 0.3% (after a 0.1% decline in April).

Yes, but: The Core PCE price index, which excludes energy and food prices, barely budged — continuing a monthslong trend that signals price gains remain sticky across the economy.

This measure rose 4.6% compared to the same month a year ago, down a tick from 4.7% in April.
It rose 0.3% in May, slowing slightly from the 0.4% the prior month.

The big picture: The data also showed that consumers slowed spending last month, rising just 0.1%, down notably from the 0.6% pace in April.

Consumers continued to splurge on services, with the biggest increases in spending coming from health care and travel. Meanwhile, they slowed purchases of goods like cars and trucks.
Adjusted for inflation, consumer spending was flat in May (versus a 0.2% gain the prior month).

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Fed's preferred inflation gauge cools alongside consumer spending slowdown

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