by Calculated Risk on 8/01/2006 10:01:00 AM

From the BEA report for June:

Core PCE increased 0.2 percent in June (2.9% annualized). Core PCE for June was slightly above the May rate (2.8% annualized), and still above the high end of the FED's assumed target range (2%).

MarketWatch sums it up: Core inflation rising at 11-year high in June
Real consumer spending tepid for fourth straight month

U.S. core consumer inflation matched an 11-year high in June, keeping the pressure on the Federal Reserve to fight inflation, the Commerce Department reported Tuesday.

The core personal consumption expenditure price index, excluding food and energy, increased 0.2% for the third straight month in June, and has risen 2.4% in the past 12 months, matching the largest year-over-year gain since April 1995's 2.5% increase.
...

Meanwhile, personal incomes rose 0.6% in June, outpacing the 0.4% increase in consumer spending.

The personal savings rate rose to negative 1.5% from negative 1.6%, the 15th consecutive month of negative savings. Consumers can have negative savings by spending previous savings, or by borrowing or selling assets to support their consumption.

After adjusting for inflation, real consumer spending rose 0.2% in June, the fourth straight month of tepid spending. Factoring out taxes and inflation, real take-home pay rose 0.4%, the biggest increase in disposable income since December.

Click on graph for larger image.

The savings rate continued its downward trend. The savings rate, as a percent of DPI, was a negative 1.5%. The Microsoft special dividend (Dec '04) and the impact of hurricane Katrina (Aug '05) are evident in the monthly chart.

Bottomline: Slowing growth, negative savings and too much inflation.