The Federal Reserve’s preferred inflation gauge accelerated in May as both consumer spending and personal income exceeded expectations, reinforcing the picture of a resilient US economy facing persistent price pressures. Personal income rose 0.7% mom, well above the expected 0.4% increase after being flat in April, while personal spending also advanced 0.7% mom, topping forecasts of 0.6% and accelerating from April’s 0.4% gain.
Inflation remained elevated across both headline and core measures. The PCE price index rose 0.4% mom, slightly below the expected 0.5% increase, while the annual rate accelerated from 3.8% yoy to 4.1% yoy, matching expectations. Core PCE, which excludes food and energy, increased 0.3% mom as expected, lifting the annual rate from 3.3% yoy to 3.4% yoy, the highest since October 2023. The data suggest underlying inflation remains sticky despite some moderation in monthly price growth.
Taken together, the report is likely to reinforce expectations that the Fed will maintain a hawkish stance. Strong income growth continues to support consumer spending, while inflation remains well above the central bank’s 2% target. The combination of resilient demand and persistent underlying price pressures is unlikely to provide policymakers with sufficient confidence that inflation is moving sustainably lower, keeping the prospect of further policy tightening firmly on the table.
| Indicator | May | April | Expectation |
|---|---|---|---|
| Personal Income | +0.7% | 0.0% | +0.4% |
| Personal Spending | +0.7% | +0.4% | +0.6% |
| PCE Price Index (Monthly) | +0.4% | — | +0.5% |
| PCE Price Index (Annual) | 4.1% | 3.8% | 4.1% |
| Core PCE Price Index (Monthly) | +0.3% | +0.2% | +0.3% |
| Core PCE Price Index (Annual) | 3.4% | 3.3% | 3.4% |
