WASHINGTON: The US Federal Reserve’s preferred inflation measure held steady in June as energy prices continued to fall, according to government data released Tuesday.
However, consumer spending slowed in the final weeks of the second quarter even though incomes continued to rise, which could sap a key source of strength from the US economy.
The latest confirmation of tame or even weakening price pressures comes as the Fed prepares to cut interest rates this week for the first time in a decade.
Central bankers are due to begin a two-day policy meeting Tuesday and the softness in inflation should strengthen the case for a rate cut — which President Donald Trump has loudly demanded.
Trump said Tuesday he wants to see a “large cut” in the benchmark lending rate.
The Personal Consumption Expenditures Price Index rose a token 0.1 percent last month, matching expectations, as prices for food, fuel and consumer items fell, according to the Commerce Department report.
Excluding the volatile food and fuel categories, “core” prices rose by a slightly faster 0.2 percent, also in line with economists’ expectations, the report said.
But the more important PCE measure compared to June of last year rose only 1.4 percent, the same increase posted in May, and still well below the Fed’s two percent target.
The core PCE price index rose 1.6 percent, up from 1.5 percent in May and the fastest increase since February.
As PCE price gains surpassed the Fed’s target last year, it raised interest rates four times.
But inflation has been softening since last year and policymakers are poised to undo at least one of those rate cuts this year.
Meanwhile, the rise in consumption was just 0.3 percent in June, slowing for the third month in a row.
Oxford Economics said income growth was solid, and with the savings rate hovering around eight percent, households have a significant “buffer against a potential sudden slowdown in pay growth.”