US core PCE inflation rises to 3.4% in May, Fed’s preferred gauge shows, highest since October 2023

The US personal consumption expenditures (PCE) price index excluding food and energy, the Federal Reserve’s preferred inflation gauge, rose to an annual rate of 3.4% in May, the highest reading since October 2023, according to data released by the US government on June 25.

The May core PCE result came after markets expected a larger increase, with forecasts cited by CNBC calling for a 4.1% year-over-year rise. The report also reiterated that the figure is based on the PCE measure, which tracks prices paid by consumers through a broad basket of goods and services.

Core PCE is widely monitored in the US because it is designed to capture underlying inflation pressures, with food and energy excluded due to their tendency to swing sharply. Under that approach, the Fed can assess whether inflation is broadening beyond short-term volatility.

The latest May reading places a fresh data point into the timeline the Federal Reserve uses when deciding whether to adjust its interest-rate policy. Officials typically weigh changes in inflation measures, labor market conditions, and overall economic activity when evaluating the path of monetary policy.

For households, core PCE is closely watched as a reference point for the rate at which prices are rising outside food and energy. A faster core inflation rate can translate into higher costs for everyday services and other goods in the broader consumption basket.

The report also underscores that inflation trends can remain uneven over time. The May print being the fastest since late 2023 suggests that the underlying price pressure the Fed targets did not continue to cool in a straight line into the spring.

Next steps include the ongoing release of additional monthly inflation and economic indicators, along with further Fed commentary on how the central bank interprets the latest inflation data within its policy framework.