Consumer prices edged up in May, according to a Friday report from the Commerce Department, with the Federal Reserve’s preferred inflation gauge showing a pace slightly above expectations.
The core personal consumption expenditures (PCE) index—excluding food and energy—rose 0.2% for the month, bringing the annual rate to 2.7%.
That’s above April’s 2.6% and higher than the 2.6% estimate from economists polled by Dow Jones. Fed officials tend to favor this core measure due to volatility in food and energy prices.
The overall PCE index, which includes all categories, also rose 0.1% in May, keeping the 12-month inflation rate at 2.3%—in line with projections. That’s still above the Fed’s 2% target, a level not seen since early 2021.
Meanwhile, consumer momentum showed signs of slowing. Personal spending dipped 0.1%, contrary to forecasts for a 0.1% increase.
Personal income also fell by 0.4%, missing the expected 0.3% gain. Together, the figures point to a cooling in demand that could weigh on growth in the months ahead.
Financial markets had a muted reaction. Stock index futures suggested a positive open, and Treasury yields climbed slightly.
Gary Schlossberg, market strategist at the Wells Fargo Investment Institute, said the report aligned with other indicators suggesting a gradual loss of momentum in the second quarter.
He added that it could help “keep hopes alive” for a rate cut in July but still considered such expectations “premature.”
The report arrives as the Federal Reserve continues to weigh its next move on interest rates.
While some policymakers have shown openness to cutting rates if inflation remains subdued, others remain cautious.
President Trump, who has pushed for lower rates, recently escalated criticism of Fed Chair Jerome Powell, calling him “stupid” and suggesting he may soon name a replacement.
Price pressures in May remained generally soft. Food prices rose 0.2%, but energy prices fell 1%, including a 2.2% drop in gasoline.
Shelter costs ticked up 0.3%. Services continued to drive inflation higher, with a 3.4% increase over the past year, while goods prices rose just 0.1%.
The business outlook remains in limbo as the Fed balances softening economic data with persistent inflation above its stated goal.
With tariffs looming and growth indicators fading, the central bank faces a tightrope act heading into the second half of the year.
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