The May personal income and spending report offered some encouragement that inflationary pressures are easing again after running hot in the first three months of the year. The core PCE deflator, a broader measure of inflation pressures than the CPI that the Fed prefers to focus on, came in at 0.1% m/m/2.6% y/y. That was expected given the CPI and PPI components, but after so many upside surprises this year, that’s a relief. The headline measure (including food and energy) was 0.0% m/m/2.6% y/y, as expected.
Looking at the unrounded numbers, the monthly change in core inflation was actually a “low” 0.1%, coming in at 0.083% to three decimal places, although April was revised slightly to 0.259% from 0.249%, making it a slightly disappointing 0.3% on a monthly basis. However, this generally helps support the argument that inflation appears to be behaving better, which could open the door to a rate cut later in the year.