Core Inflation Hits 3.4% in May, Highest Since 2023

The Federal Reserve's preferred inflation gauge rose to its highest level since October 2023, with core prices up 3.4% from a year earlier. The personal consumption expenditures price index excluding food and energy climbed 0.3% in May, matching economist forecasts. The all-items PCE index rose 0.4% for the month and 4.1% over the past year, the highest annual rate since April 2023.

Energy prices provided the largest contribution to the monthly increase, rising 4%. Housing costs advanced 0.3% while financial services and insurance jumped 1.2%. Consumer spending remained resilient. Personal consumption expenditures increased 0.7% in May, 0.1 percentage point above forecasts.

Personal income also rose 0.7%, exceeding the 0.4% projection, and the personal saving rate moved up to 3%.

A final reading showed gross domestic product expanded at a 2.1% annualized pace in the first quarter, up from the previous estimate of 1.6% and above the 1.7% consensus. The Commerce Department attributed the upward revision mainly to lower imports.

Traders kept futures in positive territory after the data release and trimmed odds of a September rate increase. Treasury yields declined. Officials have said they are watching whether price increases broaden beyond energy.