May Sees Modest 0.3% Increase in Key Fed Inflation Measure

A recent report from the Commerce Department indicates that inflation pressures have slightly eased in May due to a significant slowdown in consumer spending. The personal consumption expenditures (PCE) price index, closely monitored by the Federal Reserve, recorded a 0.3% increase for the month when excluding food and energy, aligning with Dow Jones estimates. The core PCE, which excludes food and energy, rose by 4.6% compared to the previous year, falling 0.1 percentage points below expectations. In comparison, April saw the index rise by 0.4% for the month and 4.7% from a year ago. If the volatile food and energy components are included, inflation appears considerably milder, with a mere 0.1% increase for the month and a 3.8% rise from a year ago. These figures represent a decline from April’s reported increases of 0.4% and 4.3%, respectively. The headline year-over-year number is the lowest since April 2021, while the core figure is the lowest since October 2021.

Despite a slight pullback in inflation, consumer spending only increased by 0.1% for the month, falling below the estimated 0.2% and experiencing a significant drop from April’s 0.6% increase. This deceleration occurred even though personal income accelerated by 0.4%, surpassing the estimated 0.3%. Jeffrey Roach, chief economist at LPL Financial, noted, “The spending splurge is likely nearing the end as consumers released most of the pent-up demand for spending.” While the recent data demonstrate inflation is moving in the right direction, it remains significantly higher than the Federal Reserve’s long-term target of 2%. Chairman Jerome Powell stated earlier this week that it is unlikely to reach that level for a few more years.