US Fed's Preferred Inflation Gauge Picks Up As Tariff Effects Loom
The US Federal Reserve's preferred measure of inflation edged up in May while spending weakened, government data showed Friday, with policymakers monitoring the effects of President Donald Trump's tariffs in the coming months.
The personal consumption expenditures (PCE) price index climbed 2.3 percent last month from a year ago, the Commerce Department said in a report.
This was in line with analyst expectations and a slight acceleration from April's 2.2 percent increase.
But excluding the volatile food and energy sectors, the PCE price index was up 2.7 percent, rising from April's 2.6 percent uptick, the report showed.
But consumer spending declined, after Trump's fresh tariffs in April dragged on consumer sentiment. PCE dropped by 0.1 percent from the preceding month, reversing an earlier rise.
While Trump has imposed sweeping tariffs on most US trading partners since returning to the White House in January -- alongside higher rates on imports of steel, aluminum and autos -- these have had a muted effect so far on inflation.
This is partly because he held off or postponed some of his harshest salvos, while businesses are still running through inventory they stockpiled in anticipation of the levies.
But central bank officials have said they expect to learn more about the impact of tariffs over the summer, meaning they will be scrutinizing data in the coming months.
"The experience of the limited range of tariffs introduced in 2018 suggests that pass-through to consumer prices is intense three-to-six months after their implementation," warned economists Samuel Tombs and Oliver Allen of Pantheon Macroeconomics in a note.
They also flagged weakness in consumer spending, in part due to a pullback in autos after buyers rushed to get ahead of tariffs.
But spending on services was tepid even after excluding volatile components, they said.
"There has also been a clear weakening in discretionary services spending, notably in travel and hospitality," said Michael Pearce, deputy chief US economist at Oxford Economics, in a note.
This reflects "the chilling effect of the plunge in consumer sentiment," he added.
Between April and May, the PCE price index was up 0.1 percent, the Commerce Department report showed.
As a July deadline approaches for higher tariff rates to kick in on dozens of economies, all eyes are also on whether countries can reach lasting trade deals with Washington to ease the effects of tariffs.
For now, despite the slowing in economic growth, Pearce said risks that inflation could increase will keep the Fed on hold with interest rates "until much later in the year."
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6 hours ago
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US Fed's Preferred Inflation Gauge Picks Up As Tariff Effects Loom
The US Federal Reserve's preferred measure of inflation edged up in May while spending weakened, government data showed Friday, with policymakers monitoring the effects of President Donald Trump's tariffs in the coming months. The personal consumption expenditures (PCE) price index climbed 2.3 percent last month from a year ago, the Commerce Department said in a report. This was in line with analyst expectations and a slight acceleration from April's 2.2 percent increase. But excluding the volatile food and energy sectors, the PCE price index was up 2.7 percent, rising from April's 2.6 percent uptick, the report showed. But consumer spending declined, after Trump's fresh tariffs in April dragged on consumer sentiment. PCE dropped by 0.1 percent from the preceding month, reversing an earlier rise. While Trump has imposed sweeping tariffs on most US trading partners since returning to the White House in January -- alongside higher rates on imports of steel, aluminum and autos -- these have had a muted effect so far on inflation. This is partly because he held off or postponed some of his harshest salvos, while businesses are still running through inventory they stockpiled in anticipation of the levies. But central bank officials have said they expect to learn more about the impact of tariffs over the summer, meaning they will be scrutinizing data in the coming months. "The experience of the limited range of tariffs introduced in 2018 suggests that pass-through to consumer prices is intense three-to-six months after their implementation," warned economists Samuel Tombs and Oliver Allen of Pantheon Macroeconomics in a note. They also flagged weakness in consumer spending, in part due to a pullback in autos after buyers rushed to get ahead of tariffs. But spending on services was tepid even after excluding volatile components, they said. "There has also been a clear weakening in discretionary services spending, notably in travel and hospitality," said Michael Pearce, deputy chief US economist at Oxford Economics, in a note. This reflects "the chilling effect of the plunge in consumer sentiment," he added. Between April and May, the PCE price index was up 0.1 percent, the Commerce Department report showed. As a July deadline approaches for higher tariff rates to kick in on dozens of economies, all eyes are also on whether countries can reach lasting trade deals with Washington to ease the effects of tariffs. For now, despite the slowing in economic growth, Pearce said risks that inflation could increase will keep the Fed on hold with interest rates "until much later in the year."
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Egypt's government welcomed the ceasefire between Iran and Israel and announced it would continue to make diplomatic efforts with the goal of finding a long-term, lasting solution to regional crises. Egypt must also find a careful balance, Fuchs explains, because it too is so dependent on US military aid. This balancing act came out into the open again due to recent events. Cairo has regularly rejected any plans that mean accepting expelled Palestinains. "On the other hand, the Egyptian government has also done everything possible not to anger the Israelis and the US," Fuchs noted. "For example, by thoroughly halting the Gaza solidarity march that came from Tunisia on June 14, including attacking international activists, and not allowing them anywhere near Sinai." Egypt's Sinai region borders Gaza, and on June 10, a land convoy of around 1,500 pro-Palestinian activists and more than 100 vehicles crossed into Libya from Tunisia on their way to Gaza. 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"On the other hand, a country that's cornered, severely battered and fighting for survival is unpredictable." Fuchs adds that another thing has also become clear: The current US administration's course is irritating large parts of the Middle East. "President Trump, with his foreign policy and the use of social media, is throwing all certainties out the window," Fuchs argued. "I really doubt the US will focus attention on the Middle East in coming years. Israel and Iran are exceptions. There's very little interest in further interventions and the US' focus will inevitably shift to east Asia."
