US: PCE inflation expected to slow to 1.5% in May – TD Economics

US headline PCE inflation is expected to slow to 1.5% in May vs 1.7% in April, reflecting a 0.1% fall in prices on the month.

Key Quotes

“In line with the CPI report, energy prices decelerated further led by a m/m drop in gasoline prices. Food prices should be little changed on the month but due to base effects should be less of a drag on a y/y basis. All eyes are on the core PCE (excluding food & energy) index, which we expect to post a modest 0.1% increase on the month. That could lead to another slip in the core inflation rate to 1.4% y/y vs 1.5% y/y.”

“Once again, we expect several one-offs (wireless telephone services, apparel) along with continued weakness in healthcare services prices to drive a relatively modest print in May. While fundamental factors (economic activity, labor market conditions, exchange rate pass-through) continue to point to gradual firming in the months ahead, sustained softness particularly in goods prices would become increasingly at odds with this outlook.”

“Nominal PCE (personal spending) is expected to post a relatively soft 0.1% rise in May. But a stronger real spending (0.2%) print paired with a solid April increase and handoff from March would be supportive of real PCE holding a 3% pace. Within the month of May, our 0.1% forecast reflects declines in durables and nondurables spending offset by steady gains services expenditures. We also expect a solid showing for May personal incomes (0.3%).”