US Core Inflation Creeps Up in May, Keeping Fed on Guard

The US Personal Consumption Expenditures (PCE) Price Index—the Federal Reserve’s preferred inflation gauge—rose 2.3% year-over-year in May, matching market expectations and slightly up from 2.2% in April. The core PCE, which strips out volatile food and energy prices, climbed 2.7%, edging past the 2.6% consensus and April’s 2.6% reading.

 

This uptick in core inflation, though modest, signals persistent price pressures in services and housing, even as goods and energy prices remain subdued. The data may complicate the Fed’s path toward rate cuts, especially with policymakers emphasizing the need for sustained disinflation before easing monetary policy.

Key Highlights:

 

Headline PCE YoY: +2.3% (vs April’s 2.2%)

Core PCE YoY: +2.7% (vs April’s 2.6%)

Month-over-month: Headline inflation flat; core rose 0.1%

Shelter costs continue to rise, offsetting declines in goods and energy

Personal income rose 0.5%, while consumer spending increased 0.2%

 

With inflation still hovering above the Fed’s 2% target, markets may need to temper expectations for imminent rate cuts. The next few months of data will be crucial in shaping the central bank’s policy trajectory.

 

Sources: CNBC, Barron’s, U.S. Bureau of Economic Analysis