• Core Personal Consumption Expenditures Price Index is set to rise 0.2% MoM and 4.2% YoY in June.
• The Federal Reserve left doors open for more rate hikes but Powell stressed data-dependency.
• US Dollar could see a meaningful recovery on hot PCE inflation data.

The Bureau of Economic Analysis (BEA) will publish the US Federal Reserve’s (Fed) favored inflation gauge, the Core Personal Consumption Expenditures (PCE) Price Index, on Friday, July 28 at 12:30 GMT.

What to expect in the Federal Reserve’s preferred PCE inflation report?

Personal Consumption Expenditures Price Index, excluding food and energy, is likely to edge higher by 0.2% in June when compared to a 0.3% increase in May. The annual Core PCE Price Index for June is seen rising 4.2% vs. the 4.6% growth reported previously.

Meanwhile, the headline Personal Consumption Expenditures Price Index is expected to drop 0.1% MoM in June after easing to its slowest pace in more than two years in May. The annual PCE figure is expected to rise 3.1%, at a slower pace than May’s increase of 3.8%.

Back in May, the details of the report showed that “consumer spending, adjusted for prices, was little changed after a downwardly revised 0.2% gain in April. From February through May, household spending has essentially stalled after an early-year surge. Spending on merchandise dropped, while outlays for services increased,” according to Bloomberg.

The Fed watches the headline number, officials have said repeatedly that core PCE usually provides a better long-term indicator of where inflation is headed because it strips out prices that can be volatile over shorter time periods.

Heading into the June PCE release, investors are digesting the US Federal Reserve’s dovish policy outlook at its July meeting. The Fed raised rates by the widely expected 25 basis points (bps) to a 22-year high of 5.25%-5.50% and left doors open for more tightening without committing to the timing of the next lift-off. Powell refrained from providing any forward guidance, emphasizing a ‘data-dependent’ and ‘meeting-by-meeting’ approach.

Commenting on cooling infation, during his post-policy meeting press conference, Powell said the latest report could be a one-off. He stressed that "if we see inflation coming down credibly, we can move down to a neutral level and then below neutral at some point.”

Strategists at BBH offered their expectations on the upcoming inflation report, noting that “June core PCE Friday will be important. Headline is expected at 3.0% y/y vs. 3.8% in May, while core is expected at 4.2% y/y vs. 4.6% in May. Of note, the Cleveland Fed’s inflation Nowcast sees the two at 3.0% y/y and 4.2% y/y, respectively and right at consensus.”

“However, its model suggests both PCE measures will accelerate in July to 3.4% y/y and 4.5% y/y, respectively. Personal income and spending will be reported at the same time.  Income is expected at 0.5% m/m while spending is expected at 0.4% m/m. Real personal spending is expected at 0.3% m/m,” the analysts said