Core PCE +0.2% June and +1.5% YOY, Inflation Moderating. Savings at +4.6% As Consumers Hold Back.

Overall Personal Consumption Expenditures, the Fed’s favorite measure of consumer inflation, were +0.5% in June and -0.4% year-over-year through June. Excluding volatile oil and food costs from the readings, “Core” PCE price index for June was +0.2% and +1.5% YOY through June. 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 +1.5%, Core inflation is within their comfort zone, especially since Fed chairman Ben Bernanke confirmed tame inflation last week and since this month’s reading is lower than last month’s 1.8% reading. Another noteworthy item from today’s Personal Income & Outlays Report was the fact that personal income fell -1.3% in June and that households are still hoarding cash with the Personal Savings Rate rising +4.6%. This is off from May’s +6.9% savings rate which was the highest level ever. Below is a graphical of the Personal Income & Outlays report.