In April, the core PCE price in the United States increased by 2.5% year-on-year, reaching a new low in over four years

U.S. consumption hit the brakes in April, while inflation remained mild, consistent with the economic slowdown.

On May 30, Friday, the U.S. Department of Commerce released data showing that the Federal Reserve's favorite inflation indicator—the core PCE price index rose 2.5% year-on-year in April, in line with expectations, slowing from a revised previous value of 2.7%, marking the smallest increase in over four years; the core PCE price index rose 0.1% month-on-month, unchanged from the revised previous value and expectations.

The U.S. PCE price index rose 2.1% year-on-year in April, below the expected 2.2% and the previous value of 2.3%; the PCE price index rose 0.1% month-on-month, in line with expectations, while the previous value was 0%.

It is worth mentioning that personal spending has significantly slowed, with real personal spending adjusted for inflation growing by only 0.1% month-on-month in April after a 0.7% increase in March. Personal consumption expenditures (PCE) rose 0.2% month-on-month, while the previous value was 0.7%.

U.S. short-term interest rate futures gave back earlier gains after the PCE data was released, with traders still betting on a rate cut by the Federal Reserve in September. These data indicate that after experiencing the weakest consumption quarter in nearly two years, anxiety among U.S. consumers regarding the economic outlook is spreading, with confidence in personal financial prospects falling to historic lows, despite the full impact of tariffs on commodity prices not yet being fully realized.

"Super Core Inflation Indicator" Also Falls to Four-Year Low, Service Costs Decline Sharply

Notably, the "super core inflation indicator" closely monitored by the Federal Reserve—the core service costs excluding housing and energy—also fell to a four-year low, marking the first month-on-month decline since April 2020.

Service costs were the main factor driving the decline in PCE, with significant decreases in financial services and insurance costs.

Signs of Weakness in Consumer Spending, Income Still Growing

The latest data shows that U.S. consumer spending grew only moderately, with personal consumption expenditures (PCE) rising 0.2% month-on-month in April, and real personal consumption expenditures adjusted for inflation slightly increasing by 0.1% month-on-month.

The modest increase in spending reflects growth in the service sector, which offset the decline in durable goods spending. Meanwhile, another report released on Friday showed that the U.S. trade deficit in goods narrowed significantly in April, primarily due to the largest drop in imports on record.

Personal income remains robust, growing by 0.8% month-on-month, the largest increase since January 2024, exceeding the estimated 0.3%, with wages for both government and private sector employees accelerating

Due to income performance exceeding expenditures, the savings rate has rebounded strongly to 4.9%, the highest level since April 2024.

Analysis Warning: As Tariff Effects Emerge, Commodity Price Increases Will Accelerate

Fluctuations in trade policy have intensified market uncertainty, putting consumer spending at risk. However, Federal Reserve policymakers are likely to maintain interest rates unchanged in the foreseeable future until they gain a clearer understanding of the impact of tariffs—not only on prices but also on economic pillars such as the labor market and consumer spending.

Economists are closely monitoring the extent to which businesses pass higher import tariffs onto consumers. The inflation indicator for goods excluding food and energy has risen by 0.3%, providing an early warning signal for future price pressures. Although many companies have so far absorbed or offset most of the impact of tariffs, retailers including Walmart and Macy's have clearly stated that American consumers will soon see price increases.

Nick Timiraos from the "New Federal Reserve News Agency" noted that this nearly A+ inflation report still has two points to watch:

1. Forecasters expect that as the effects of tariffs become apparent, the increase in commodity prices will accelerate in May, especially in June. 2) Mid-2024 inflation has clearly cooled, so the year-on-year base itself is unfavorable for deriving a lower annual growth rate