Personal Consumption Expenditures (PCE)

May 2023

May’s PCE inflation report continues the disinflation trend that has been in place for nearly a year. Food prices rose 0.1% and energy prices fell 3.9%. The pace of headline PCE inflation peaked at 7.0% year-over-year in June 2022 and has since decelerated to 3.8% in May 2023. The core PCE rate peaked at 5.4% in February 2022 and has slowly drifted lower to 4.6% in May 2023. As you can see in the chart below, the core rate(black) is moving sideways as the headline rate(grey) drops. Over the past year, goods prices are up 1.1% while services prices are up 5.3%. In our view, a year-over-year core PCE inflation rate of 4.6% remains too high for the Fed to stop raising rates. We forecast another 25 basis point rate hike at the July FOMC meeting lifting the fed funds target to a range of 5.25% to 5.5%.

Headline PCE:

+0.1% seasonally adjusted in May, following +0.4% in April

+3.8% year-over-year

+2.5% latest 3 months annualized

+3.4% latest 6 months annualized

Core PCE: (excludes food and energy)

+0.3% seasonally adjusted in May, following +0.4% in April

+4.6% year-over-year

+4.1% latest 3 months annualized

+4.6% latest 6 months annualized

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Long-Term Chart of Headline and Core PCE Inflation (Year over Year Change)

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Summary Tables from BEA.gov PCE report:

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Core-PCE YoY Percent change from the same month one year ago:

Source: BEA.gov

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