The core PCE was higher than the consensus of 4.6% y/y, printing at 4.7% y/y. The previous reading was 4.6% y/y. On a monthly basis, it came in at 0.4% (4.9% - annualised), higher than the 0.3% expected.
Its rate of change indicator (ROC) shows an upward bump (green rectangle) for the latest number. This will worry the Fed, who has a target of 2% y/y, and will only be achieved if the ROC remains on the deceleration side of 0.
The Fed's May minutes published on Wednesday, revealed a division among policymakers regarding their future course of action. During the meeting, members aimed to strike a delicate balance between addressing inflation levels that exceeded expectations and managing the potential repercussions stemming from issues within the banking sector. The latest reading will fuel hawkish influence.
As such, the adage "higher for longer" is reinforced. The CME FedWatch tool gives a probability of a 25-bps hike at the June meeting 57%. which is much higher than the 17% from a week ago.
The cost of goods and services experienced a relatively balanced distribution of price hikes, with goods witnessing a 0.3% increase and services showing a 0.4% rise. Food prices experienced a marginal decrease of less than 0.1%, whereas energy prices saw a notable increase of 0.7%. On an annual basis, goods prices rose by 2.1%, while services exhibited a significant growth of 5.5%.
Senior Market Specialist
Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.