Basic personal consumption spending, the Federal Reserve’s favorite inflation reading, rose in May from its highest level in nearly three decades, as the US economy continued to gain momentum as COVID-19 lockdown restrictions have eased.
Core PCE, which excludes food and energy, jumped 3.4% annually, from 3.1% in April, the Bureau of Economic Analysis said. The reading was the strongest since April 1992. Prices rose 0.5% on a monthly basis, slowing slightly from April’s 0.7% gain.
Analysts polled by Refinitiv expected an annual increase of 3.4% and a monthly gain of 0.6%.
Overall, personal consumption spending rose 3.9% year-on-year and 0.4% from April.
“We don’t think this data will have an impact on the Fed’s current plans to reduce extraordinary stimulus (i.e. ‘tapering’) and rate hikes,” said Chris Zaccarelli, Director of Investments for Independent Advisor Alliance. “Between the most recent speeches from Dot Plot and the Fed, they have shown interest in starting a reduction plan within the next 6-12 months (and announcing that plan within 3-6 months) and potentially increasing rates from 18 months. ”
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In addition, personal income fell 2% in May, as the impact of stimulus checks continued to fade. Revenue fell 13.1% in April.
Spending was unchanged in May. The previous month’s reading has been revised to an increase of 0.9% from 0.5% growth.
Analysts had expected a 2.5% drop in revenues and a 0.4% increase in consumption.