Prices rise faster in may, Fed's key measure shows

In May, prices in the U.S. went up a bit more than expected, according to the Federal Reserve’s favorite way to track inflation, the Personal Consumption Expenditures (PCE) index. The PCE showed prices rose 0.1% from April, matching the previous month’s increase. Over the year, inflation hit 2.3%, up from 2.2% in April, staying above the Fed’s 2% goal.

Core prices, which leave out food and energy, climbed 0.2% monthly, more than the 0.1% economists predicted, reaching 2.7% yearly, compared to 2.6% in April. This uptick in prices has the Fed cautious about cutting interest rates soon. Fed Chair Jerome Powell said they need more data to see how inflation and the economy behave, especially with new tariffs possibly pushing prices higher.

Some Fed officials worry tariffs could spark more inflation, while others think the effect might be small. Meanwhile, consumer spending dropped 0.3% in May after a 0.1% rise in April, hinting at slower economic growth. Personal income also fell 0.4%, mainly due to lower government benefits and farm earnings.

The personal savings rate dipped to 4.5% from 4.9%. Investors are watching closely, as these numbers suggest the Fed might hold off on rate cuts until later, possibly September, to balance inflation and growth.