Research
July 31, 2025
PCE Deflator
Core inflation accelerated in June, while income and spending resumed growth
Inflation edged further away from the Federal Reserve’s 2% target in June. That was one of the key takeaways from the latest Personal Income and Outlays report from the Bureau of Economic Analysis.
The Personal Consumption Expenditures (PCE) deflator – the Federal Reserve’s preferred inflation gauge – increased 0.3% in June. That represented the strongest monthly gain since February (0.4%). Food prices rose 0.3% in June, while energy costs jumped 0.9%. Excluding the more volatile food and energy components, core PCE rose 0.3% in June, the largest increase since February (0.5%).
On a year-over-year basis, the PCE deflator increased 2.6% in June, up from 2.4% in May and the strongest 12-month gain since February (2.7%). Core inflation was 2.8% over the past 12 months, which matched May as the highest reading since February (2.9%).
Although prices ticked higher in recent months, both headline and core inflation remained significantly below their pandemic-era peaks: 7.1% for headline PCE in June 2022 and 5.5% for core PCE in September 2022.
The fact that inflation remains elevated is one of the reasons why the Federal Open Market Committee chose to leave short-term interest rates unchanged at their July meeting.
Personal consumption expenditures rose 0.3% in June, after remaining flat in May. June represented the strongest monthly gain since February, and was driven by a 0.7% increase in spending on non-durable goods. Spending on foodservices and accommodations rose 0.2% in June, after remaining flat in May.
On a year-over-year basis, total personal spending increased 4.7% over the past 12 months. Spending on foodservices and accommodations was up 4.5% between June 2024 and June 2025.
Higher prices continued to drive much of the growth in recent months. Inflation-adjusted personal consumption rose 2.1% year-over-year, while real spending on foodservices and accommodations increased 1.5%.
Personal income rose 0.3% in June, rebounding from a 0.4% decline in May. Even excluding May’s decline, June represented the weakest income growth since November. That was due in large part to a modest 0.1% increase in wages and salaries.
Real disposable personal income was flat in June, after plunging 0.7% in May. On a year-on-year basis, real disposable personal income was up just 1.7% in June.
Personal saving as a percentage of disposable personal income stood at 4.5% in June, unchanged from May. Savings rates remain well below the 2017-2019 average of 6.5%, which indicates consumers continue to dip into their savings.
The Personal Consumption Expenditures (PCE) deflator – the Federal Reserve’s preferred inflation gauge – increased 0.3% in June. That represented the strongest monthly gain since February (0.4%). Food prices rose 0.3% in June, while energy costs jumped 0.9%. Excluding the more volatile food and energy components, core PCE rose 0.3% in June, the largest increase since February (0.5%).
On a year-over-year basis, the PCE deflator increased 2.6% in June, up from 2.4% in May and the strongest 12-month gain since February (2.7%). Core inflation was 2.8% over the past 12 months, which matched May as the highest reading since February (2.9%).
Although prices ticked higher in recent months, both headline and core inflation remained significantly below their pandemic-era peaks: 7.1% for headline PCE in June 2022 and 5.5% for core PCE in September 2022.
The fact that inflation remains elevated is one of the reasons why the Federal Open Market Committee chose to leave short-term interest rates unchanged at their July meeting.
Personal consumption expenditures rose 0.3% in June, after remaining flat in May. June represented the strongest monthly gain since February, and was driven by a 0.7% increase in spending on non-durable goods. Spending on foodservices and accommodations rose 0.2% in June, after remaining flat in May.
On a year-over-year basis, total personal spending increased 4.7% over the past 12 months. Spending on foodservices and accommodations was up 4.5% between June 2024 and June 2025.
Higher prices continued to drive much of the growth in recent months. Inflation-adjusted personal consumption rose 2.1% year-over-year, while real spending on foodservices and accommodations increased 1.5%.
Real disposable personal income was flat in June, after plunging 0.7% in May. On a year-on-year basis, real disposable personal income was up just 1.7% in June.
Personal saving as a percentage of disposable personal income stood at 4.5% in June, unchanged from May. Savings rates remain well below the 2017-2019 average of 6.5%, which indicates consumers continue to dip into their savings.