Following the release of the latest U.S. personal income and spending report, James Knightley, ING's Chief International Economist, discusses May's PCE inflation data.

"The main market interest in the personal income and spending report is focused on the inflation readings. May's core Personal Consumer Expenditure deflator (the Federal Reserve's favoured inflation measure) has come in as expected at 3.4% year-on-year despite the month-on-month reading being a touch below anticipated at 0.5% MoM versus the 0.6% consensus forecast. The Treasury market appears to have liked that story, as it hints that inflation momentum may be moderating."

"Nonetheless, we have to remember that the annual rate of inflation is still the highest since April 1992 and there are plenty of inflation risks still out there given ongoing supply frictions and the fact businesses are struggling to find workers. This is putting up costs and in an environment for strong consumer demand there is growing evidence that companies are increasingly aware of their own pricing power. We continue to suspect that inflation may not be as transitory as the Federal Reserve initially thought."