The U.S. Personal Consumption Expenditures Price Index rose 0.4 percent month-over-month in May 2021, less than the 0.6 percent increase in the previous month.
The cost of services rose 0.3 percent from 0.5 percent the previous month, and goods price inflation fell to 0.7 percent from 0.9 percent. Core PCE inflation, which excludes food and energy, rose 0.5 percent and was below market expectations of 0.6 percent. On a year-over-year basis, the PCE price index rose 3.9 percent and the core index rose 3.4 percent, the fastest increase since the early 1990s and in line with market forecasts.
Meanwhile, U.S. personal spending was unchanged in May 2021 after an upwardly revised 0.9 percent increase in April and diverging from market expectations of a 0.4 percent increase. Growth in spending on services was mostly offset by a decline in spending on goods. In services, growth was broad-based, led by leisure, food and lodging services, as well as housing and utilities. The decline in spending on vehicles and vehicle parts was a major contributor to the decline in goods spending.
The US Dollar Index fell below 91.7 points after the economic data described above, and the EUR/USD pair rose above 1.1950 as the US infrastructure spending deal seems to be boosting appetite for riskier currencies and the aforementioned PCE price data failed to surprise markets. For the week as a whole, the US currency is heading for a decline of more than 0.5%, which could be a correction of an even earlier week with strong USD appreciation after the Federal Reserve meeting.
Investors in the US stock market also welcomed the inflation data, with the S&P 500 index reaching a new all-time high. After last week's bad impression and fears of a quick US interest rate hike this week, US Fed officials sought to reassure financial markets that there would be no immediate monetary tightening. This, in turn, seems to be believed by Wall Street and investors buying increasingly expensive US stocks.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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