Data on personal income in June showed it was up 0.4% month-over-month for a fourth month in a row. In June, the increase was largely due to a solid 0.5% increase in wages and salaries. Personal consumption expenditures backed off the faster increases of the past few months and were up 0.3% in June. However, spending on durables, although weaker than in May, was still a respectable up 0.4%. Nondurables spending was up 0.2%, in part on slightly higher gasoline prices. Spending on services was up 0.3%, a little slower than in recent months, but more-or-less on trend.
The report included annual revisions.
The PCE deflator was not much changed compared to a year-ago at up 1.4% in June after 1.4% in May. The core PCE deflator nudged up to up 1.6%, its highest reading in five months.
Inflation as measured by the PCE deflator is in contrast to the reported for the Consumer Price Index. The content of the basket of goods measured account for some of the difference; the PCE deflator is considered more comprehensive.
The PCE deflator is the Fed’s preferred measure of inflation and remains noticeably below the 2% objective. Still low inflation will give the FOMC some room to consider a rate cut at the July 30-31 meeting in spite of the strength in the labor market. The main justification for a possible rate cut is to act preemptively in the face of risks to the economic outlook, but it still needs to be undertaken within the context of the dual mandate.
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