PCE report today shows U.S. inflation ticked higher in May as consumers pared spending

The latest data on the personal consumption expenditures price index (PCE) indicates a slight increase in inflation, with prices rising by 2.3% in May compared to the previous year. Core prices, excluding food and energy categories, also saw a rise of 2.7% year-over-year. These numbers suggest that inflation is persistently above the Federal Reserve’s 2% target.

Despite the uptick in inflation, the impact of the Trump administration’s tariffs on prices across the U.S. has been relatively modest so far. Federal Reserve Chair Jerome Powell has warned that inflation could pick up in the coming months as the import duties are passed on to consumers.

In May, consumers reduced their spending for the first time since January, coinciding with a drop in incomes. This pullback in spending is attributed to consumers rushing to make purchases earlier in the year before the tariffs took effect. However, economists believe that this decline is temporary and not a cause for concern.

The decrease in incomes was influenced by a one-time adjustment to Social Security benefits, which had boosted payments in March and April. The Social Security Fairness Act led to an increase in payments for some retirees who had worked for state and local governments.

While some goods, such as toys and sporting goods, have seen price increases due to tariffs, other items like new cars, airline fares, and apartment rentals have experienced price declines. Overall, inflation remains moderate, with prices rising only slightly on a monthly basis.

Businesses have been absorbing higher import costs to prevent passing on price hikes to consumers. This strategy, along with the pre-tariff stockpiling of goods by companies, has helped cushion consumers from significant price increases.

Economists are closely monitoring consumer spending, which unexpectedly dropped in May. This decline, the first since the pandemic, may have implications for the Federal Reserve’s monetary policy decisions. However, for now, there is no major cause for concern regarding inflation.

The original content was contributed by The Associated Press. The rewritten article has seamlessly integrated key points from the original post while providing a fresh perspective on the current economic landscape.