Core inflation rate hit 3.4% in May, highest since October 2023
The core Personal Consumption Expenditures (PCE) price index rose to 3.4% in May, marking the highest annual inflation rate since October 2023 and signaling persistent price pressures in the U.S. economy.
Background
The PCE (Personal Consumption Expenditures) price index is the Federal Reserve's preferred inflation gauge, more influential than the better-known CPI when it comes to interest-rate decisions. "Core" PCE strips out volatile food and energy prices to show underlying inflation trends. The Fed targets 2% annual core PCE inflation; a sustained reading above that level puts pressure on the central bank to keep interest rates high or raise them further. The last time core inflation was this high (October 2023) prompted a prolonged period of restrictive monetary policy. This report matters because it shapes expectations for when — or whether — the Fed will start cutting rates, which affects borrowing costs for mortgages, credit cards, and business loans across the economy.