Inflation Falls To Lowest Point Since March 2021, Key Indicator Reveals

 A key inflation measure fell to its lowest level in more than three years last month, but there’s still plenty of work remaining to get price increases down to the historically acceptable level.

 The personal consumption expenditures index rose 2.6% from May 2023 to May 2024, according to Commerce Department data released Friday.

That matches consensus economist forecasts of 2.6% inflation, according to FactSet, dipping from April’s 2.7%.

The arguably more important core PCE index, which measures how much Americans spend monthly on items other than food and energy, slipped to 2.6%, in line with estimates of 2.6% and hitting the lowest level since March 2021.

The PCE index was flat from April to May, the first time there’s been no month-over-month change in the index since November, a strong sign as personal income rose 0.4% month-over-month.

Investors, who desire lower inflation to support potential interest rate cuts, reacted positively to the release, with S&P 500 futures up close to 0.5% while 10-year U.S. government bond yields fell to below 4.3% (lower yields indicate an increase in bond values).

The core PCE index is the Federal Reserve’s favored inflation measure as it possibly paints the fullest picture of the impact on consumers’ wallets. The more popular consumer price index tracks the price of a preset basket of goods and services, making CPI inflation not as nimble a metric given it accounts less for possible substitution or behavior shifts. Core PCE inflation peaked at a four-decade high of nearly 6% in 2022, and it remains higher than it ever was from 2007 to 2020. Fed consensus projections don’t project the inflation metric to come down to 2% until 2026, with median core PCE inflation forecasts of 2.8% by the end of 2024. Other than spelling further frustration for consumers, lingering inflation would mean interest rates will probably stay higher for longer than previously thought, making borrowing like mortgages and business loans pricier in an effort to slow spending and inflation.

3.9%. That was the U.S.’ personal savings rate in May, according to data also released Friday by the Commerce Department, measuring the proportion of total income leftover after personal consumption expenditures and taxes. That’s about half as strong as the 7.1% savings rate five years ago, and the metric never fell below 4.5% for the entirety of the 2010s