The US core PCE price index in June rose by 2.6% year-on-year, slightly exceeding expectations, while remaining flat on a month-on-month basis at 0.2%

The Federal Reserve's preferred inflation gauge rose moderately in June, with consumer spending remaining steady. Coupled with the second-quarter GDP growth released on Thursday exceeding expectations, the U.S. economy is sending more signals of a "soft landing."

On July 26, the U.S. Department of Commerce released data showing that the year-on-year growth rate of the U.S. June PCE price index fell from 2.6% in the previous month to 2.5%, the lowest level in five months, higher than the expected 2.4%; the month-on-month growth rate rose from 0% in May to 0.1%, in line with expectations.

Excluding volatile food and energy prices, the year-on-year growth rate of the core PCE price index in June remained at 2.6%, the lowest level since March 2021, but higher than the expected 2.5%. The month-on-month growth rate rebounded from 0.1% in the previous month to 0.2%, meeting market expectations.

After the data was released, the market remained relatively stable. The three major U.S. stock index futures continued to rise, while U.S. bond yields fell to intraday lows, with the 10-year yield at 4.22%.

Consumer spending remains stable, purchasing power further weakened

Consumer spending in June increased by 0.3% month-on-month, in line with expectations, with the May increase revised from 0.2% to 0.4%.

Real consumer spending (adjusted for inflation) increased by 0.2% month-on-month, slightly below the expected 0.3%, but the May increase was revised up to 0.4% (previously 0.3%).

The cooling of the labor market is beginning to translate into a weakening of purchasing power. Personal income in June rose by 0.3% month-on-month, half the pace of growth in May. Adjusted for inflation, disposable income growth slowed to 0.1%.

The savings rate fell to 3.4%, the lowest level since December 2022.

Super core PCE index slows down, medical service costs continue to soar

Fundamentally, durable goods deflation continues to drag down core PCE, while service costs continue to rise.

It is worth noting that the so-called super core PCE (core services excluding housing) price index rose by 0.2% month-on-month, reaching 3.43% year-on-year, further slowing down from May. However, this marks the 50th consecutive month of increase in the super core PCE price index

Medical service costs continue to soar, while housing and utility costs have seen a slight increase, and transportation services as well as leisure, entertainment, and tourism services costs have slightly declined.

The U.S. Federal Reserve is more concerned about housing and energy service inflation, which rose by 0.2% month-on-month in June, remaining unchanged from the previous value.

In conclusion, this PCE report has released more signals of an economic "soft landing." With the July interest rate decision looming, Wall Street generally expects the Federal Reserve to stay put, but bets are on the first rate cut to happen in September