The Fed’s preferred measure of inflation hit a 40-year high in June

The Fed's preferred measure of inflation hit a 40-year high in June
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According to data released by the Bureau of Economic Analysis on Friday, the Personal Consumption Expenditure price index, which measures the change in the prices of goods and services purchased by consumers, increased by 6.8% in June compared to the same period last year.

That tops the previous 40-year high of 6.6% in March of this year and is just shy of the 6.9% annualized rate set in January 1982, when inflation slowed from one of the highest levels in US history.

Prior to June, the PCE index was flat at 6.3% for both May and April. However, gas prices hit record highs in June, and the PCE price index reflected those gains: food prices rose 11.2% and energy prices rose 43.5%, according to the IEA. During the month, the PCE price index increased by 1% from May.

Stripping out volatile food and energy prices, core PCE — an index of inflation closely watched by the Federal Reserve — rose 4.8% from a year ago, up slightly from May but down from February’s peak of 5.3%.

Rising energy prices helped Push the Consumer Price IndexAnother key measure of inflation hit a nearly 41-year high in June, according to data released by the Bureau of Labor Statistics earlier this month.

Incomes take a hit

On Friday, BEA data showed Americans’ incomes rose 0.6% in the month, disposable income rose 0.7% and spending rose 1.1%. However, adjusted for inflation, consumer spending rose just 0.1% month-on-month, while disposable income fell 0.3% month-on-month.

Scott Brave, Morning Consult’s chief consumer spending economist, said consumer spending is slowing, largely due to inflation.

“Inflation-adjusted personal income fell again in June, and it’s really been trending down consistently for more than a year,” Brave told CNN Business. “And that just creates pressure, forces the consumer to react, and I think we’re now getting to the point where growth is definitely slowing down.”

According to him, first of all, low-income households suffered the most.

“Recently, we’ve started to see this filter in middle-income families as well,” he said. “They’re also starting to pull back more on spending and have to adjust the distribution of costs.”

Consumers still have a bad outlook

Clearly, consumers are not feeling good about the state of the economy right now, especially high inflation.

In July, the consumer sentiment index was 51.5 Consumer Surveys of Michigan. That’s a bit over the top The preliminary indicator of July is 51.1 and resides above All-time low with 50 set in June.

“Strong consumer spending was supported by strong labor markets and rising income expectations; but with persistently high prices eroding those incomes, consumers are adjusting their spending habits to cope,” said Joanne Hsu, Director of Consumer Surveys. “With concerns that higher unemployment may be on the horizon, this slowdown in consumer spending will be exacerbated if concerns about the future path of the labor market continue to grow.”

In the July survey, consumers expect median inflation to be 5.2% over the next year and about 2.9% over the next five years.

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