UPDATE - US Fed's preferred inflation indicator softens annually to 2.6% in May from 2.8% in April

UPDATES WITH ADDITIONAL FIGURES

By Ovunc Kutlu

ISTANBUL (AA) - The US Federal Reserve's preferred inflation indicator softened in May on both annual and monthly bases, according to Commerce Department figures released Friday.

The core personal consumption expenditures (PCE) price index monthly rose 2.6% in May, down from the 2.8% year-on-year gain in April, and came in line with market expectations.

On a monthly basis, the core PCE price index increased 0.1% in May, also slowing its pace from a 0.3% month-on-month increase in April, and came in line with market estimates.

The PCE price index, which includes food and energy prices, annually rose 2.6%, after a 2.7% annual gain in April, also coming in line with market expectations.

That index, on a monthly basis, remained unchanged, following a 0.3% monthly increase in April, and also in line with estimates.

The slowing figures indicate that the pace of inflation is decelerating in the world's biggest economy, and the Fed could start lowering interest rates as early as September.

The Fed has made a total of 11 interest rate increases between March 2022 and July 2023 to tame the record inflation, carrying the federal funds rate to the 5.25%-5.5% target range – the highest in 22 years.

The central bank skipped four rate hikes last year, and four more this year, while its first rate cut is widely expected to happen in the second half of this year.

The Commerce Department's Bureau of Economic Analysis said prices for goods decreased by 0.4% in May, compared to the previous month, but prices for services rose 0.2%.

"Food prices increased 0.1 percent and energy prices decreased 2.1 percent," it said in a statement.

Annually, prices for goods fell 0.1% in April, from the same month of last year, but prices for services jumped 3.9% year-on-year.

"Food prices increased 1.2 percent and energy prices increased 4.8 percent," on an annual basis, it added.

There was a 0.3% increase in real PCE during the month of May, which reflected a 0.6% gain in spending on goods and a rise of 0.1% in spending on services, the agency noted.

"Within goods, the largest contributor to the increase was recreational goods and vehicles, led by computer software and accessories," said the statement.

"Within services, the largest contributors to the increase were transportation services, led by air transportation, and health care, led by outpatient services," it added.