The U.S. inflation gauge most closely watched by the Federal Reserve climbed 4.1% in the 12 months through May, the Bureau of Economic ******* ysis said Thursday — the first reading above 4% in three years and the highest since April 2023.
On a monthly basis, the PCE price index advanced 0.4%, the same pace as April. Stripping out food and energy, the core measure came in at 3.4% above year-ago levels and 0.3% higher than the prior month.
Spending held up despite the inflationary backdrop. The 0.7% monthly jump in personal consumption expenditures outpaced both the forecast and the inflation rate, with services accounting for $94.3 billion of the increase and goods contributing $61.8 billion. Personal income matched that 0.7% gain, and the saving rate stood at 3%.
The May inflation reading was in line with the forecast of economists polled by Reuters. The annual PCE rate had come in at 3.8% in April.
Much of the pickup in inflation traces back to the U.S.-led war against Iran, which sent oil and gasoline prices sharply higher. A fragile ceasefire has since brought fuel prices down from their peaks, but economists do not expect inflation to cool quickly. Adding to the pressure, import tariffs had already been pushing up costs for consumers before hostilities broke out.