“Core” PCE inflation, which excludes more volatile food and energy prices, was just 0.1 percent from April to May and also fell to 2.6 percent year over year.
Inflation flatlined even as consumer spending and incomes rose last month. Disposable income was up 0.5 percent in May, and consumer spending ticked up 0.2 percent from a revised 0.1 percent in April.
The latest PCE reading is continuation of the protracted plateau in the Fed’s battle to bring down inflation, and rising political pressure related to the economy and inflation as the November election nears.
Former President Trump claimed President Biden “caused the inflation” during the first presidential debate Thursday night.
He also claimed “there was no inflation” during his administration.
The pandemic did disrupt decades of low inflation, surging from 1.4 percent year over year when Biden took office in January 2021 to 9.1 percent in June 2022.
But inflation has come down significantly since and clocked in at 3.3 percent annually in May, according to the Labor Department’s latest consumer price index (CPI) print.
A number of factors contributed to the spike in prices, including major supply chain disruptions and Russia’s invasion of Ukraine. Reopening the economy after the pandemic, and subsequent stimulus spending distributed under both administrations, tipped the economy into overdrive.
The Fed has hiked interest rates to a 23-year high in a bid to cool the economy. While the central bank was positive at the end of last year that rate cuts were on the horizon, inflation readings have extended the timeline for potential rate cuts.
“This is the lowest monthly core inflation increase that we’ve seen this year and it furthers the narrative that the disinflationary trend that stalled during the first quarter is back to life again. Core inflation is now below the year-end median estimate that was penciled in at the last FOMC,” said Olu Sonola, head of U.S. economic research at Fitch Ratings.
“If the trend we saw this month continues consistently for another two months, the Fed may finally have the confidence necessary for a rate cut in September.”
A majority of interest rate traders don’t expect the Fed to start cutting rates until at least September, according to the CME FedWatch Tool.
The Hill’s Taylor Giorno has more here.
