Core inflation, a gauge that removes food and prices, came in higher than expected.
The Federal Reserve’s preferred inflation measure rose in May, a reading that could influence the U.S. central bank’s timing of interest rate cuts.
New Bureau of Economic Analysis data, released on June 27, show that inflation in the personal consumption expenditures (PCE) price index ticked up to 2.3 percent last month from an upwardly revised 2.2 percent in April.
From April to May, the PCE price index edged up by 0.1 percent.
Both readings were in line with economists’ expectations.
Core PCE inflation, which strips out the volatile energy and food components, jumped to 2.7 percent in the 12 months ending in May, higher than the consensus forecast of 2.6 percent. April core PCE inflation was adjusted slightly higher to 2.6 percent.
On a monthly basis, core PCE rose at a higher-than-expected pace of 0.2 percent.
The Fed places more weight on PCE than the consumer price index because it covers a broader range of items and is updated more frequently.
Meanwhile, according to the Bureau of Economic Analysis, personal income declined by 0.4 percent following a revised 0.7 percent increase in the previous month. The drop in current-dollar personal income was partly driven by a 2.3 percent decrease in government benefit payments.
Personal spending also dipped by 0.1 percent following April’s 0.2 percent rise.
The personal savings rate edged lower to 4.5 percent from 4.9 percent.
Inflation Is Coming, the Fed Says
While inflationary pressures have not intensified, policymakers predict that higher tariffs will lead to higher inflation this summer.
Appearing on Capitol Hill this week, Fed Chair Jerome Powell stated that the country should examine in the June and July data whether levies are triggering higher inflation.
“If we don’t we are perfectly open to the idea that the pass-through [to consumers] will be less than we think, and if we do, that will matter for policy,” Powell told lawmakers.
Until then, he says, the central bank needs to manage the risks and ensure tariff-driven inflation is not an ongoing inflation problem.
“We’re just trying to be careful and cautious,” the central bank chief stated. “We really think that’s the best thing we can do for the people that we serve.”
His main fear is that if the Fed lowers interest rates as the inflation flame is rekindled, then it would force the institution to backpedal. “If we make a mistake, people will pay the cost for a long time,” Powell said.
Officials within the Federal Reserve are debating whether inflation will resurface due to the president’s sweeping global tariffs.
By Andrew Moran
