Fed's preferred inflation gauge rose to 4.1 percent in May
The personal consumption expenditures (PCE) price index rose 4.1 percent over the 12 months through May, up from 3.8 percent in April and the fastest annual pace since 2023, the Commerce Department reported . PCE is the gauge the Federal Reserve watches most closely when setting interest rates, so the acceleration complicates any near-term move to cut.
Most of the increase traces to energy. Oil and gasoline prices spiked during the U.S.-led war against Iran, and that pass-through dominated the headline number. Core PCE, which strips out food and energy, ran at 3.4 percent — elevated but far below the headline figure, indicating that underlying price pressure is milder than the top line suggests and that tariff-related goods inflation has largely worked through.
Consumer spending and personal income each rose 0.7 percent on the month, both above forecasts, so demand has not buckled under the higher prices. Because crude prices eased in June after the Strait of Hormuz reopened and the ceasefire held, May may mark the peak of this inflation episode rather than the start of a sustained climb — but that depends on energy markets staying calm.