Fed's Favorite Inflation Indicator Ticks Higher In June

The Fed's preferred inflation gauge, Core PCE, increased by 0.3% month-over-month and 2.8% year-over-year, exceeding expectations. This marks the highest annual rate since February, though not the extreme surge some had predicted. Services inflation is showing acceleration, along with rising costs for durable goods. Household supplies appear to be experiencing price increases potentially linked to tariffs. Headline PCE also rose 0.3% month-over-month and 2.6% year-over-year, surpassing forecasts. Nearly all sectors, except for non-profits, are contributing to this acceleration. A component known as Super Core PCE, which excludes shelter costs, fell to 3.18% year-over-year in June. Healthcare costs are beginning to rise, independent of tariff impacts. Both personal income and spending increased by 0.3% month-over-month in June, recovering from a May decline. Wages are re-accelerating, with private sector wages up 4.7% year-over-year and government wages up 5.5% year-over-year. Spending and income are both up 4.7% nominally year-over-year, with the savings rate remaining stable at 4.5%. The data raises questions about whether the Federal Reserve will consider interest rate cuts or if the lagged effects of tariffs will eventually manifest more significantly in prices.