Fed's preferred inflation reading posts biggest annual increase since 1992

Core personal consumption expenditures rose 3.4% annually in May

Core personal consumption expenditures, the Federal Reserve’s preferred inflation reading, rose in May by the most in nearly three decades as the U.S. economy continued to gain momentum while COVID-19 lockdown restrictions eased.

Core PCE, which excludes food and energy, jumped 3.4% annually, up from the 3.1% increase in April, the Bureau of Economic Analysis said. The reading was the strongest since April 1992. Prices rose 0.5% on a monthly basis, slowing slightly from April’s 0.7% gain. 

Analysts surveyed by Refinitiv were expecting a 3.4% annual increase and 0.6% monthly gain. 

Overall, personal consumption expenditures rose 3.9% year over year and 0.4% from April.

"We don’t believe that this data will impact the Fed’s current plans for reducing extraordinary stimulus (i.e. "tapering") and rate hikes," said Chris Zaccarelli, chief investment officer for Independent Advisor Alliance. "Between the most recent Dot Plot and Fed speeches, they have shown interest in beginning a tapering plan in the next 6-12 months (and announcing that plan within 3-6 months) and potentially raising rates as soon as 18 months from now."


Additionally, personal income declined 2% in May as the impact from stimulus checks continued to subside. Income fell 13.1% in April. 

Spending was unchanged in May. The prior month's reading was revised up to an increase of 0.9% from 0.5% growth. 

Analysts were anticipating income to decline 2.5% and consumption to tick up 0.4%.