US core PCE prices surprise to the upside in May

Personal income and spending growth in the States undershot economists' forecasts during the month of May, alongside a slightly stronger-than-expected reading on inflation.

According to the Department of Commerce, in seasonally adjusted terms personal incomes and spending fell by 0.4% and 0.1% month-on-month, respectively.

Consensus on the other hand had been for increases of 0.3% and 0.1%.

The headline price deflator for personal consumption expenditures was 0.1% higher over the month and ahead by 2.3% in annual terms, both as expected.

At the core level however, PCE prices - the Fed's preferred inflation gauge - were up by 0.2% versus May and 2.7% year-on-year (consensus: 2.6%).

Worth noting, the previous month's reading on core PCE prices had been revised up from a preliminary estimate of 2.5% to 2.6%.

Personal savings fell by four tenths of a percentage point in comparison to the prior month to reach 4.5%.

Michael Pearce at Oxford Economics told clients that the unwinding in temporary factors were responsible for the drops in income and spending.

Nonetheless, according to Pearce the trends in some segments of discretionary outlays had weakened and the consultancy anticipated that would continue as tariffs sapped disposable incomes.

"PCE inflation remained benign in May, but we are only just starting to see the impact of tariffs in consumer goods prices, and several favorable one-offs depressing inflation over the past few months will go into reverse from June onwards," he added.

"Despite the slowing economy, the upside risks to inflation will keep the Fed on the sidelines until much later in the year."