(Bloomberg) – The Federal Reserve's preferred measurement of underlying US inflation showed signs of picking up in May against the central bank's target, and potentially increasing the line for a rate cut when decision makers meet in the end next month.
The goal, which excludes food and energy, rose 0.2% from last month and according to a trade department report Friday. The annual gain was just above the median estimate in a Bloomberg survey, and the three-month annual increase increased to approx. 2%, a five month high.
Purchases, which make up the majority of the economy, rose from April, slightly below estimates, after an upward 0.6% gain in April. Personal income increased for a second month, topping forecasts, although wages climbed the slowest pace for six months.
While Friday's figures alone are unlikely to spur the Fed to act in one way or another, a sustained flow of positive economic news in coming weeks can persuade decision makers to keep interest rates unchanged, despite financial market pressure and President Donald Trump . Stronger consumer spending and higher revenues will support future growth as the expansion will be the longest in US history in July.
Earlier this week, Powell said the latest data that inflation deficits "may be more persistent than we had hoped." In May, he said officials saw dumped inflation likely to be temporary.
The wider PCE price meter, which the Fed officially measures 2% inflation, rose 0.2% from the previous month and was up 1[ads1].5% from the previous year, which matched Median estimates in a Bloomberg survey. Political decision-makers see the core meter as a better indicator of underlying price developments, and have said they are also aiming to increase 2%.
Fed officials in the quarterly forecasts last week lowered their outlook for PCE inflation to 1.5% this year and to 1.8% for core PCE prices.
Friday's report showed that inflation-adjusted spending rose by 0.2% for a second month, which was less than projected, although the April figure was an upward adjustment. The gain in May was driven by new motor vehicles, as well as food service and accommodation expenses, according to the report.
- The personal savings rate was kept at 6.1%, the lowest since November.  Adjusted for inflation, disposable income increased 0.3%, the fastest pace this year.
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