• The personal consumption expenditures price index, an inflation measure the Federal Reserve watches closely, is expected to show little, if any, monthly increase for May.
• When stripping out volatile food and energy prices, the core PCE price index is set to indicate its lowest annual reading since March 2021.
• The Commerce Department releases the inflation readings, along with reports on personal income and spending, Friday at 8:30 a.m. ET.

There could be some pretty good inflation news on the way from the Commerce Department when it releases a key economic report Friday.

The personal consumption expenditures price index, an inflation measure the Federal Reserve watches closely, is expected to show little, if any, monthly increase for May, the first time that would be the case since November 2023.

But even more importantly, when stripping out volatile food and energy prices, the core PCE price index, which draws even closer scrutiny from Fed policymakers, is set to indicate its lowest annual reading since March 2021.

If that date rings a bell, it's when core PCE first passed the Fed's coveted 2% inflation target during this cycle. Despite a series of aggressive interest rate increases since then, the central bank has yet to wrest the pace of price increases back into its target range.

The official Dow Jones forecasts for Friday's numbers are for the headline, or all-item, PCE price reading to come in flat on the month, while core is projected to rise 0.1%. That would compare to respective increases of 0.3% and 0.2% in April. Both headline and core are forecast at 2.6% on a year-over-year basis.

Should the core PCE price forecasts transpire, it will serve as a milestone of sorts.

"We are in line with [the forecast] that the PCE core pricing data will come in soft," said Beth Ann Bovino, chief economist at U.S. Bank. "That's good news for the Fed. It's also good for people's pocketbooks, although I don't know if people feel it just yet."

Indeed, while the rate of inflation has receded precipitously from its mid-2022 peak, prices have not. Since that March 2021 benchmark, core PCE is up 14%.

That steep climb and its pernicious effect is why Fed officials are not ready to declare victory yet, despite the obvious progress made since the rate hikes began in March 2022.

"Returning inflation sustainably to our 2% target is an ongoing process and not a fait accompli," Fed Governor Lisa Cook said earlier this week.

Cook and her colleagues have been circumspect about the timing and pace of rate cuts, though most agree that easing is likely at some point this year as long as the data stays in line. Futures markets are currently pricing in a good likelihood that the Fed will enact its first quarter-percentage-point cut in September, with another to follow by the end of the year. Policymakers at their meeting earlier this month penciled in just one cut.

"We do expect softening in the real economy — not falling off a cliff, just softening — that suggests that inflation will be softer as well later on. That gives us reason to expect the Fed will be able to likely have their first cut in September," Bovino said.

"Now we all know it depends on the data and the Fed is still watching," she added. "Could they wait? Could it just be a one and done this year? I can't rule it out. But it does look like the numbers might give the Fed cover to cut rates two times this year."

In addition to the inflation numbers, the Commerce Department at 8:30 a.m. ET will release figures on personal income and consumer spending, with estimates at a rise of 0.4% and 0.3%, respectively.