Jul 28, 2023 - Economy

New data is latest evidence America's inflation problem is receding

Data: Bureau of Economic Analysis; Chart: Axios Visuals

A deluge of economic data released Friday show America's inflation problem is continuing to ease.

Driving the news: The Federal Reserve's go-to measure of inflation cooled meaningfully last month. Separate data showed that wage growth — which was feared to stoke further price gains — continued to decelerate in the second quarter.

Why it matters: Inflation remains too high, but the very rapid price gains that plagued consumers, economic policymakers and Biden administration officials look squarely in the past.

  • Easing inflation has — so far — happened alongside a still-healthy economy and labor market, bucking expectations that falling inflation would result in a recession.

By the numbers: The Personal Consumption Expenditures Index, tracked closely by officials at the Federal Reserve — rose 3% in June compared to the same month a year ago, the Commerce Department said. That's a sharp drop from the 3.8% in May.

  • Core PCE, which strips out food and fuel prices and is thought to be a good indicator of underlying inflation pressure, cooled too: 4.1% in June, compared to 4.6% in May.
  • That happened as consumers picked up spending in June (+0.5%) compared to the prior month (+0.2%).

Meanwhile, the Employment Cost Index — the most comprehensive measure of wage growth — showed pay growth slowed across the board in the second quarter.

  • Since inflation took off, this report has taken on more importance: while good for workers, policymakers feared that wages rising too quickly would make inflation more difficult to stamp out.

Details: Wages and salaries rose 1%, down from 1.2% in the first quarter, the Labor Department said. In the 12 months through June, wages and salaries increased 4.6%, compared to 5% in March.

  • Yes, but: Because of cooler inflation, worker pay grew much more quickly in real terms in the 12-month period through June: up 1.7%, compared to flat growth in March.

The bottom line: Taken together, the data continues a stunning run of releases that show inflation pressures ebbing.

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