May’s PCE price index rise exceeds expectations, fueled by energy costs and tariffs, pressuring the Fed on rate decisions.
US inflation accelerated to 4.1% year-over-year in May, the highest since April 2023, driven by rising energy prices linked to Middle East tensions. The core PCE index, a key Fed gauge, climbed 0.4% month-over-month, matching April’s gain and surpassing forecasts of 4.1% annual growth.
Economists had anticipated a 4.1% rise after April’s 3.8% print. Gasoline prices surged due to the US-Iran conflict but have since retreated under a fragile ceasefire. Persistent inflation stems from earlier tariffs and supply chain disruptions, complicating the Fed’s policy path.
Consumer spending remained resilient despite higher costs, though political pressure mounts ahead of November’s midterm elections. Markets may price in a higher likelihood of a Fed rate hike this year.