Fed's preferred inflation gauge rises 4.7%, remains near 40-year-high

The data comes as consumer confidence sits at the lowest since February '21

The Federal Reserve's preferred inflation gauge came in slightly cooler than expected in May, but remains near a 40-year-high.

The personal consumption expenditures index, which measures costs that consumers pay for a variety of different items, showed that core prices – which exclude the more volatile measurements of food and energy – climbed 0.3% month over month and rose 4.7% year over year in May, according to the Commerce Department. Economists surveyed by Refinitiv were expecting a 0.4% month-over-month increase and a 4.8% year-over-year increase in May.

Headline inflation rose 0.6% for the month, faster than April's 0.2% gain. Year over year headline inflation held steady between April and May at 6.3% but is down slightly from March's 6.6%.

The latest inflation data comes after the consumer price index hit a fresh 40-year-high in May, rising 8.6% year-over-year, the fastest pace for inflation since December 1981. 


The government's data also showed that personal income rose 0.5% in May, in line with estimates, while spending rose 0.2%, slightly below the 0.4% increase expected. The personal savings rate hit 5.4% in May, compared with 5.2% in April.

On Tuesday, the Conference Board reported that its consumer confidence index fell to a reading of 95.2 in June — the lowest level since February 2021. The survey found that 19.6% of respondents view current business conditions as "good", compared to 23% who said they were "bad." About 15.9% of consumers surveyed expect their incomes to increase in the short-term, while 15.2% expect their incomes to decrease. 

"Consumers’ grimmer outlook was driven by increasing concerns about inflation, in particular rising gas and food prices," the Conference Board's senior director of economic indicators Lynn Franco said in a statement. "Expectations have now fallen well below a reading of 80, suggesting weaker growth in the second half of 2022 as well as growing risk of recession by yearend."

Goldman Sachs, Bank of America, Deutsche Bank have raised the odds of an economic downturn in 2022 or 2023


Earlier this month, Fed officials voted to raise interest rates by 75 basis points for the first time since 1994. The move puts the key benchmark federal funds rate between 1.50% and 1.75%, the highest since the pandemic began two years ago. 

Federal Reserve chairman Jerome Powell told reporters at a press conference following the policy-setting meeting that another increase of 75 basis points or 50 basis points is on the table for July. Officials expect the benchmark federal funds rate to hit 3.4% by the end of the year and 3.8% by the end of 2023, a big increase from their March projections.

Fox Business' Megan Henney contributed to this report