Fed’s Preferred Inflation Gauge Rises to 3.4% in May, Highest Since October 2023

1-Minute Brief

Rising inflation and steady economic growth may influence Federal Reserve policy and impact consumer affordability.

Key Facts

• The personal consumption expenditures (PCE) price index core inflation rate reached 3.4% in May, the highest since October 2023.
• The U.S. economy expanded at a 2.1% annual pace from January through March, according to the Commerce Department's final estimate.
• The PCE price index was expected to show a 4.1% annual increase, according to some forecasts.
• Jobless aid filings fell to 215,000 last week, indicating layoffs remain low despite economic headwinds.
• The Federal Reserve’s preferred inflation gauge reached a three-year high in May as gas prices peaked.

What Happened

The Federal Reserve’s preferred inflation gauge rose to 3.4% in May, marking the highest level since October 2023. Meanwhile, the U.S. economy grew at a 2.1% annual rate in the first quarter, and jobless claims declined.

Why It Matters

Elevated inflation and continued economic growth may affect Federal Reserve interest rate decisions and influence consumer purchasing power. Rising prices could also have political implications as elections approach.

What's Next

Observers will monitor upcoming inflation data and labor market trends for indications of potential changes in Federal Reserve policy. Policymakers and businesses are expected to assess the impact of persistent inflation on economic outlooks.