The Federal Reserve’s preferred inflation measure rose at a 4.1% annual rate in May, spotlighting the Fed’s challenge in curbing in prices, according a report by CBS News.
The reading for The Personal Consumption Expenditures index matched economists’ forecasts for the PCE report to come in at 4.1% annually, according to financial data service FactSet. CBS reported that compares with an annual increase of 3.8% in April, and it represents the highest level since April 2023.
According to CBS, the Core PCE, which strips out volatile energy and food prices, rose 3.4%, slightly higher than the 3.3% forecast by economists.
May’s PCE report could mark the peak of the latest inflation surge because crude oil prices eased in June amid hopes that the Strait of Hormuz, the key Persian Gulf waterway that handles 20% of global oil flows, could soon reopen. That drop in energy costs isn’t reflected in the latest PCE data, analysts noted.
Consumers Still Spending
“It’s our expectation that inflation will start going lower now that the Strait of Hormuz has reopened and oil prices are coming down, so that may alleviate some of the pressure on the Fed, but next month’s data needs to be lower than what we are seeing today if that is going to be the case,” said Chris Zaccarelli, Chief Investment Officer for Northlight Asset Management, told CBS in an email.
“We estimate headline inflation has peaked and will trend lower in the second half of the year, assuming the Strait of Hormuz remains open,” Nationwide Chief Economist Kathy Bostjancic also said in an email.
Despite the jump in prices last month, the latest inflation data shows consumers continued to spend strongly in May, economists said.
Adjusted for inflation, spending rose 0.3% from April to May, CBS said. Inflation-adjusted incomes rose for the first time in four months, picking up 0.3%, which could boost consumer spending in the coming months.
“Real personal spending is rising at a pace consistent with the trend growth rate of GDP,” Carl Weinberg, Chief Economist at High Frequency Economics, said in a report. “That is good news!”
