US Consumer Spending Rises 0.3% in June as PCE Inflation Hits 2.6% Annual Rate

Consumer spending in the United States experienced a slight uptick in June, contributing to economic activity even as inflation showed signs of accelerating. According to freshly released data from the Commerce Department, consumer spending rose by 0.3% compared to May, a month during which spending remained flat. This increase occurred alongside a visible rise in tariff-related price increases on store shelves and online.

The Personal Consumption Expenditures (PCE) price index, a crucial measure used by the Federal Reserve to achieve its 2% inflation target, also recorded a 0.3% monthly increase, elevating the annual rate to 2.6%, marking the highest level since February. Despite economists anticipating this rise in the PCE index, it slightly surpassed earlier predictions. Analysts had expected the PCE to climb from May’s figures, predicting an increase to 2.5% annually from an initial 2.3%. May’s annual inflation rate was amended up to 2.4% in Thursday’s report.

The upward trajectory of the PCE index has been attributed partially to rising gasoline prices, which had been declining over much of the year but reversed course in June. Energy costs surged by 0.9% after a 1% fall in the previous month, while goods prices increased by 0.4%, reaching the highest monthly rate observed since January.

When excluding the traditionally volatile categories of energy and food, the core PCE index saw prices climb more rapidly in June. These price hikes registered a 0.3% increase from May, marking the swiftest pace in four months, and maintained an annual rate of 2.8%.

Federal Reserve policymakers are closely monitoring these inflation metrics as they endeavor to revert to their long-term 2% inflation target. The PCE headline figure, rising from 2.3% to 2.6% in the span of a month, serves as a focal point in their assessments, although core data often offers a more meaningful indicator of underlying inflation trends. The core PCE jumped from 2.7% to 2.8% year-over-year, indicating sustained pressure in consumer prices.

In terms of spending categories, goods prices saw a year-over-year increase of 0.6%. Durable goods prices climbed 0.9%, while nondurable goods experienced a 0.5% increase. Conversely, services prices were up by 3.5% from the previous year, reflecting a broader spectrum of price pressures across sectors.

From an income perspective, wages and salaries saw a minimal increase of 0.1% on a monthly basis in June, the slowest growth recorded since at least November. Meanwhile, the personal savings rate remained steady at 4.5% of disposable personal income, unchanged from the previous month.

As these dynamics unfold, analysts will remain vigilant in observing how tariff-induced inflationary pressures may further impact consumer behavior and overall economic health. Although wage growth remains tepid, the firming of core inflation could pose additional challenges as policymakers strive to navigate these conditions.

This report on the PCE index, critical in assessing broader inflationary trends, underscores the complexities facing economic decision-makers amid evolving consumer spending patterns and fluctuating price signals.