The June Personal Income and Outlays report from the U.S. Bureau of Economic Analysis showed that the headline personal consumption expenditures price index rose by 3.7% year over year, in line with market expectations and down from 4.1% in May. Core PCE inflation (excluding food and energy prices) rose 3.3% year over year, also in line with expectations and down from May’s 3.4%. Personal consumption expenditures increased by $65.2 billion, or 0.3% month over month. The growth in expenditures was primarily driven by increases in health care and motor vehicles and parts, offset by a 48.1% decrease in purchases of gasoline and other energy goods.
The ABA Office of the Chief Economist believes that the lower-than-expected inflation reading is a potential tailwind for the broader economy. Lower inflation supports household purchasing power which could improve credit performance and consumer loan demand. At the same time, lower inflation potentially reduces the outlook for higher borrowing costs, which can stimulate business investment and real estate activity. Still, this month’s reduction in price growth was largely due to a normalization in gasoline expenditures and inflation remains above the Federal Reserve’s target.
