People shop at a supermarket in Montebello, California on May 15, 2024.
Frederic J. Brown | Frederic J. Brown AFP | Getty Images
Inflation is taking small steps back toward levels policymakers want, and reports on Friday are expected to show more slow progress.
The Commerce Department’s personal consumption expenditures price gauge is expected to show inflation at an annual rate of 2.7% in April, according to Dow Jones estimates of overall inflation and “core” inflation, which excludes food and energy costs.
If that forecast holds, it would mean a slight decline in core indicators and little change in headline rates, although economists will be watching both annual and monthly indicators. Core inflation is expected to slow to 0.2%, suggesting at least some further progress in easing price pressures on weary consumers.
Overall, the report, due out at 8:30 a.m. ET, is likely to suggest the Fed will again gradually move back to its 2% target.
Carol Schleif said: “We don’t expect any major upside or downside surprises in personal consumption expenditures on Friday, as most recent economic data suggests the economy has entered a period where it’s neither too hot nor too hot. Too Cold for Long-Term Good Conditions “Having said that, achieving the Fed’s 2% target may be bumpy. “
Controlling inflation is tricky these days.
The Fed parses the data in a variety of ways, most recently introducing a so-called “super core” level that looks at the cost of services excluding food, energy and housing as a way to gauge long-term trends.
However, policymakers’ expectations that housing inflation would cool this year have largely been dashed, adding another wrinkle to the debate.
Additionally, the Fed’s preference for personal consumption expenditures is a bit of a mystery, as the public focuses more on the Labor Department’s Consumer Price Index, which shows a higher trend. In April, the all-item CPI inflation rate was 3.4%, and the core CPI inflation rate was 3.6%, much higher than the Federal Reserve’s target.
How much has been cut this year?
The Fed prefers the personal consumption expenditures (PCE) measure because it takes into account changes in consumer behavior, such as when shoppers replace more expensive items with cheaper ones. In theory, the method could provide a better understanding of the actual cost of living, rather than just absolute prices. Fed officials pay special attention to core because it is a better long-term indicator.
The U.S. Commerce Department had some good news on Thursday — again, it was mild — reporting that PCE grew 3.3% in the first quarter The headline rate was 3.6% and the core rate was 3.6%, both 0.1 percentage points lower than the initial estimate. Similarly, the “month-on-month weighted” price index was 3%, also 0.1 percentage points lower than the first printing.
However, these numbers are still far from the Fed’s goals. Markets have always been sensitive to inflation trends, particularly how they reflect central banks’ interest rate intentions. Current expectations are for only one rate cut this year, most likely in November, according to the central bank. CME Group’s Fed Watch A measure of futures pricing.
Matthew Ryan, head of market strategy at global financial services company Ebury, said: “Economists are optimistic that the monthly data in this report will be lower than the CPI, and any disappointment may cause the market to further consider the prospect of an interest rate cut in 2024.”
New York Fed President John Williams, part of the Fed’s leadership troika that also includes Chairman Jerome Powell and Vice Chairman Philip Jefferson, said Thursday , he expects the PCE inflation rate to continue to decline, falling to around 2.5% by the end of the year and eventually reaching 2% in 2026.
“We have a lot of dynamic supply and increasing productivity in our economy. So that’s how I know what’s going on,” Williams said. “There’s always a big question mark as to how it will play out in the future.”
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