Fed's Preferred Inflation Gauge Climbs to Three-Year High

The Federal Reserve's preferred inflation gauge showed prices accelerated to their highest level in three years, likely prompting the central bank to keep interest rates unchanged while leaving the door open to further rate hikes if inflation fails to ease, Jennifer Schonberger reported for Yahoo Finance.

The Federal Reserve's preferred inflation gauge rose to a three-year high in May, strengthening expectations that interest rates will remain elevated. (Photo: United States Federal Reserve Flickr)

The Personal Consumption Expenditures (PCE) price index rose 4.1 percent year over year in May, in line with market expectations and up from 3.8 percent in April.

On a monthly basis, inflation increased 0.4 percent, matching April's pace and coming one-tenth of a percentage point below expectations.

Excluding the volatile food and energy components, the Fed's preferred measure of underlying inflation—core PCE—rose 3.4 percent year over year, also in line with expectations and up from 3.3 percent in April.

Month over month, core PCE increased 0.3 percent, up from 0.2 percent in April, marking its highest monthly reading since October 2023.

Higher energy prices helped push overall inflation higher, but the continued increase in core inflation suggested that broader price pressures persisted in May.