The Fed’s target is 2.0 percent, actual is 4.1 percent, up 0.4 percent from last month.
The BEA’s Income and Outlays report shows the PCE Price Index is up 0.4 percent from last month and 4.1 percent from a year ago.
Five Measures of Inflation Year-Over-Year
- CPI: 4.25
- Core CPI: 2.85
- CPI Rent: 2.92
- PCE: 4.07
- Core PCE: 3.41
I calculate to two decimal places, the reports rounds to one decimal place.
PCE Inflation Detail Month-Over-Month
PCE Month-Over-Month Percent Change
- PCE: 0.45 percent
- PCE Goods: 0.44 percent
- Core PCE: 0.32 percent
- PCE Services: 0.45 percent
PCE Year-Over-Year Detail
PCE Year-Over-Year Percent Change
- PCE: 4.1 percent
- PCE Goods: 4.8 percent
- PCE Services: 3.8 percent
- Core PCE: 3.4 percent
The PCE was last under 2.0 percent in February of 2021, 63 months ago.
The Main Question
The main question is less whether both headline and core go up—they are widely expected to—but rather how “stale” these numbers already are.
Specifically, the consensus forecast is for monthly headline inflation to edge higher from 0.4% to 0.5%, with the annual rate rising from 3.8% to 4.1%. Monthly core is expected at 0.3% (from 0.2%) and the annual rate at 3.4% (from 3.3%).
These numbers come before the recent sharp fall in oil prices, which will result in lower headline inflation and ease some of the pressures on core. The question being debated is by how much, including whether May will prove to be the peak inflation month.
Looking Ahead
Goods inflation is going to drop substantially due to falling gasoline prices.
However, services are 65 to 70 percent of the PCE price index. If medical care services and housing are elevated, the disinflation will be less than most expect.
On a year-over-year basis, the next four months are neither difficult nor easy to beat. It’s not until January of 2027 before year-over-year comparisons become easy to beat.
By January 2027, anything can happen ranging from mild stagflation to a disinflationary recession crash.
Consumer and Corporate Spending Buoyancy
- Much buoyancy in consumer spending comes from the stock market.
- Much buoyancy in corporate spending is related to AI.
- Completing the circle, AI is fueling the stock market, trucking and other things.
Expect housing to remain in the gutter. And expect hiring to be weak.
Effectively, the economy is firing on one cylinder: AI. But it’s a big cylinder.
So, a key question is “Where does AI take us?” But no one can say for sure.
Other Factors
AI is not the end of it. The war in Iran can easily break out again. But that’s not my expectation.
In contrast, I expect Trump is highly likely to make matters worse with tariffs. Notably, the USMCA deal has a joint review on July 1.
I will discuss USMCA in a separate post, but even if the war is settled, there is plenty of room for Trump to make matters worse elsewhere.
I think we know most of the numbers on the dice, even the likelihood of some question marks. However, we don’t know the outcome of the roll.
Related Posts
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June 24, 2026: Trump’s Demand on SAVE Act Makes Passing Any New Reconciliation Bill Difficult
Trump insists the SAVE Act be part of a new reconciliation bill.
June 25, 2026: New Home Sales Drop Another 7.3 Percent, Builders Struggle with Rising Inventory
Sates are down. Inventory is high and rising, pressuring builders.
How long we can fire on a single cylinder remains to be seen.
“Goods inflation is going to drop substantially due to falling gasoline prices.”
Questionable. Empty strategic reserves need to be replenished. Oil and fertilizer will not be coming out of the Gulf at pre-February levels for a long time, even assuming the MOU avoids Bibi blowing it up.
For 62 months in a row, the Fed has missed its anointed 2% inflation target. Since March 2021. And now getting worse! Do they get some kind of demerit for that? No, no. Everyone should still hang on their every utterance as if they were wise.
Well some goods will drop but Apple stock is down 6% today on news that it will have to raise prices as ram, storage and other computer component costs are soaring. AI demand is one reason but I think it goes beyond that. I will be shocked if others don’t follow suit and raise prices across the board.
I also think the oil situation won’t be sorted out as many people think. Ukraine continues to blow up Russian oil infrastructure. Iran supposedly fired on a ship today in the Strait. Oil infrastructure still blown to bits from the last war.
There are too many variables and too many things that can go wrong so my bias is for higher inflation until we get a demand collapse.
We can all agree on one thing…
Do worry, Trump & Walrus will find a way to make things even worse.™
I had dinner at a fabulous Michelin restaurant tonight so I’m awarding 1-star Mishelin to this post to complement my meal.
Well said.
The Fed is a bunch of rich people who really will not care about inflation until the guillotines are rolled out into the town squares. This is what my grandchildren tell me. They are being radicalized by the circumstances that they perceive as their lot in this economy. The latest election results in NYC seem to reflect this. How do we fix this. I rather like having my head attached. I am certain that most do.