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The core PCE inflation measure, which strips out volatile food and energy costs, rose 4.7% from the year before, down from 4.9% in April. The Fed focuses on inflation derived from this particular index to help inform its policymaking decisions.
Core PCE has been ticking downward since it hit 5.3% in February, but still remains at historically high levels.
Month over month, prices rose 0.6% in May — higher than April’s 0.2% growth rate but lower than March’s 0.9% increase — while core prices increased 0.3% for the fourth consecutive month.
When accounting for inflation, consumer spending fell by 0.4% from April. That’s the first month-on-month decline in real consumption this year — and it’s unlikely to be the last, said Cailin Birch, global economist at the Economist Intelligence Unit.
Pullbacks in spending and, especially, consumers’ inflation expectations will continue to weigh heavily into the Fed’s future decision-making process on further rate hikes, she said.
Birch said her firm expects the Fed to revert to increases of 50 basis points in the coming months as it attempts to balance mixed economic data and respond without triggering a recession.
Federal Reserve Chairman Jerome Powell has repeatedly conveyed that the central bank’s efforts affect demand but not necessarily supply, while acknowledging the latter’s outsized effect on rising prices.
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