May’s PCE inflation rose to 4.1%, exceeding April’s 3.8%, while consumer spending surged 0.7% despite higher prices.
The Federal Reserve’s preferred inflation gauge, the PCE price index, climbed 4.1% year-over-year in May, the highest since April 2023. Monthly inflation matched April’s 0.4% rise, with core PCE up 3.4% annually and 0.3% from the prior month.
Economists had forecast the 4.1% annual increase, following April’s 3.8% reading. Spending remained resilient, with personal consumption expenditures rising 0.7% in May, outpacing inflation. Services drove $94.3 billion of the gain, while goods contributed $61.8 billion. Personal income also rose 0.7%, keeping the saving rate at 3%.
Inflation pressures stem from geopolitical tensions, including the U.S.-Iran conflict, which lifted fuel prices. Import tariffs had already been pushing up costs before the conflict. The Fed held rates steady last week but signaled potential hikes later this year.