Core inflation rate hit 3.4% in May, highest since October 2023, Fed’s preferred gauge shows

The Federal Reserve's primary price gauge rose at its highest level since 2023, reinforcing the central bank's recent tough talk on inflation. Excluding food and energy, the personal consumption expenditures price index showed a 3.4% annual rate after rising 0.3% for the month, both in line with Dow Jones consensus. The core reading was the highest since October 2023. For the all-items reading, the PCE index showed inflation running at a seasonally adjusted 4.1% annual rate, the highest since April 2023, according to a Commerce Department report Thursday. On a monthly basis, PCE accelerated 0.4%. The annual level was in line with the Dow Jones consensus estimate while the monthly reading was 0.1 percentage point below. While Fed officials look at both headline and core rates, they generally consider the latter a better measure of long-run trends, particularly in light of this year's inflation surge that was driven largely by an acceleration in energy prices tied to the Iran war that have slowly been seeping into other parts of the economy. Even with the elevated inflation levels, consumer spending for the month came in stronger than expected. Personal consumption expenditures, a proxy for spending, rose 0.7% for the month, 0.1 percentage point above the forecast and ahead of the inflation rate. Personal income also rose 0.7%, well above the 0.4% forecast. The personal saving rate rose to 3%. …