Core PCE +0.1% May and +1.8% YOY, Fed OK With This Inflation Rate. Savings at Record +6.9% As Consumers Hold Back.

Overall Personal Consumption Expenditures, the Fed’s favorite measure of consumer inflation, were +0.1% in May and +0.1% year-over-year through May. Excluding volatile oil and food costs from the readings, “Core” PCE price index for May was +0.1% and +1.8% YOY through May. The Fed looks closely at Core PCE excluding food and energy prices because of the price volatility of these two items, and the Fed’s zone for reasonable inflation is 1-2% per year. At +1.8%, Core inflation is within their comfort zone, but touching on the higher end of the range—in recent weeks, markets have been fearful of inflationary effects of massive government stimulus, so this is something to watch—markets move fast, just last quarter, all the fear was about deflation.

Another noteworthy item from today’s Personal Income & Outlays Report was the fact that personal income came in above expectations at +1.4% and that households are still hoarding cash with the Personal Savings Rate rising 6.9% annualized, the highest level ever.