Inflation Gauge Hits Three-Year High, Keeping Fed Rate-Hike Talk Alive
Cue Writer
The Federal Reserve’s preferred inflation measure climbed to its highest level in about three years in May, a fresh reminder that price pressures remain a central risk for households, businesses and investors.
The personal consumption expenditures price index rose 4.1% from a year earlier, while the core measure that strips out food and energy increased 3.4%, according to reporting from CNBC on federal economic data released Thursday. The core reading was the highest since October 2023, and the headline rate was the highest since April 2023.
The report matters because PCE inflation is the gauge Fed officials watch closely as they decide where to set interest rates. A hotter reading can make borrowing costs more likely to stay elevated, affecting credit cards, auto loans, mortgages and business financing across the United States and in territories tied closely to U.S. financial conditions, including the Virgin Islands.
Energy costs were a major driver of the monthly increase, CNBC reported, with energy-related goods and services up 4% for the month. Other categories also showed pressure, including housing and financial services and insurance.
Consumers still showed resilience in May. Personal spending and personal income each rose 0.7%, while the personal saving rate increased to 3%. That combination suggests households continued to spend even as prices rose, complicating the Fed’s effort to cool inflation without damaging the broader economy.
Markets have been watching whether the Fed may need to raise rates later this year if inflation fails to ease. For local consumers and small businesses, the policy path can influence financing costs, investment decisions and the price of imported goods.
Source: CNBC