It’s been a whole year since the Federal Reserve heard good news about inflation. On Friday, it looks like they will.
This is what you need to know about the May PCE inflation report.
It’s not going up as fast.
The Fed’s favorite way to measure inflation in the U.S. is the PCE index, which is not expected to change in May. That would be the first time in six months that prices didn’t go up.
A pair of inflation reports on consumer and wholesale prices earlier this month hinted at a positive PCE report. In May, both the consumer price index and the producer price index went down.
This and that report both go into the PCE.
Core inflation
The core rate of inflation, which doesn’t include food and energy costs, is also expected to rise by a small 0.1% in May. It is thought that the core rate is a better indicator of future inflation.
It would be the smallest rise since November of last year. When did the core rate go down last? In April 2020, when the pandemic was at its worst.
Illness over the long term
The rate of inflation would get closer to the Fed’s goal of 2% if everything in the report goes as planned.
The annual rise in headline PCE may slow from 2.7% to 2.6%.
After 12 months, the core rate could go up by 2.6% instead of 2.8%, which would be the lowest level since the spring of 2021.
Short-term price rises
Top Fed officials also pay close attention to the annualized rates of inflation for the last three and six months to get a sense of how prices have been moving lately.
Once a year, these rates show what inflation would be like if it grew at the same speed for a whole year as it did in the last three or six months.
The core PCE inflation rate fell to as low as 1.6% per year in December and then went up to 4.4% in March.
Since then, the rate for three months has gone down to 3.5%.
Six-month pattern
While core inflation has been more stable over the past six months, it was still rising at a rate of 3.2% per month in April.
In a speech on Tuesday, Fed Gov. Lisa Cook said she thought the 12-month rate of PCE inflation would stay close to its current level for the rest of the year because of some high readings in 2023.
She did say, though, that she thought the three- and six-month annualized rates would get closer to the Fed’s 2% goal.
“The inflation data shows that consumers don’t want prices to go up, so I think that three- and six-month inflation rates will continue to go down on a rough path,” she said.
Rate cuts by the Federal Reserve are likely to happen at least once this year, and maybe even twice.
