US June PCE report solid, not spectacular – SCB

Analysts at Standard Chartered Bank noted that the Core PCE rose as cost of goods accelerated.

Key Quotes:

• June core PCE printed a touch below our and market expectations, rising 1.90% y/y and 0.11% m/m
• Core goods price increases accelerated again y/y; medical care prices decelerated
• FOMC is happy to be close to target; comfortable with or without inflation overshoot

“June personal consumption expenditure (PCE) data printed a touch below our and market expectations: core PCE rose 1.90% y/y and 0.11% m/m. Core goods prices accelerated for the fifth straight month, rising 1.4% y/y, though increases in medical care prices, another key component of core PCE, moderated to 4.5% y/y (from 4.6% y/y in May). Core goods prices remains an area to watch as pressures from producer prices, which have persisted for some months, seeped into core inflation in June, and are likely to help sustain increases in the core index even as favourable base effects from low prints last year begin to abate.”

“Personal income rose 0.4% m/m; wages and salaries increased 0.4% m/m, building on an increase in May and April. Wage and salary disbursements have risen 4.8% y/y, on average, so far in 2018, compared to the 2017 average of 4.6% y/y and 2016 average of 2.9% y/y. The saving rate remained 6.8%. The employment cost index (ECI), despite reporting a slightly softer-than-expected 0.6% m/m, continued to underscore a steadily improving worker compensation backdrop; private-sector salaries rose 2.9% y/y and benefits 2.8% y/y. All told, employers seem to be finding some success in attracting staff through a balance of wage and benefit incentives, keeping overall employment costs manageable so far, even with the economy growing robustly. The report paints a solid picture of the US consumer and a solid albeit benign outlook for inflation.”