US inflation rises moderately in June

US PRICES rose moderately in June, underscoring an improving inflation environment that potentially positions the Federal Reserve to begin cutting interest rates in September.

The personal consumption expenditures (PCE) price index nudged up 0.1 per cent last month after being unchanged in May, the Commerce Department’s Bureau of Economic Analysis said on Friday (Jul 26). In the 12 months through June, the PCE price index climbed 2.5 per cent, after rising 2.6 per cent in May.

Excluding the volatile food and energy components, the PCE price index rose 0.2 per cent last month. That followed an unrevised 0.1 per cent gain in May.

Economists polled by Reuters had forecast both monthly headline PCE and core inflation rising 0.1 per cent in June. Following Thursday’s gross domestic product data showing core inflation rising slightly faster than expected in the second quarter, some raised their core PCE price index estimate to 0.2 per cent. Forecasts for headline PCE inflation were little changed.

Overall, price pressures are subsiding and could help Fed officials meeting next week build more confidence that inflation is moving toward the US central bank’s 2 per cent target. The Fed tracks the PCE price measures for monetary policy.

Demand in the economy has cooled in response to the central bank’s aggressive monetary policy tightening in 2022 and 2023. Economic growth averaged 2.1 per cent in the first half of this year compared to 4.2 per cent in the second half of 2023.

The Fed has maintained its benchmark overnight interest rate in the current 5.25 per cent-5.50 per cent range since last July. It has hiked its policy rate by 525 basis points since 2022.

Subsiding inflation and easing labour market conditions have led financial markets to anticipate three rate cuts this year, starting in September.

Consumer spending, which accounts for more than two-thirds of US economic activity, increased 0.3 per cent last month after rising 0.4 per cent in May, the report also showed.

SEE ALSO

Fed seen signalling September rate cut at next week’s meeting

The data was included in the advance second-quarter GDP report, which showed the economy growing at a 2.8 per cent annualised rate, double the first quarter’s 1.4 per cent pace. REUTERS