US PCE Inflation Hits 4.1%, Fastest Pace Since April 2023, as Consumer Spending Rebounds

Bloomberg reported that US consumer spending accelerated in May even as prices rose at the fastest pace in more than three years, with the personal consumption expenditures price index climbing 4.1% year-on-year — the highest reading since April 2023. Core PCE, excluding food and energy, advanced 3.4% from a year earlier. Inflation-adjusted consumer spending rose 0.3% month-on-month after stalling in April, suggesting Americans are absorbing the inflationary fallout from the Iran war. A separate Bureau of Economic Analysis report showed the US economy grew at an annualized 2.1% pace in the first quarter, faster than previously estimated. The inflation figures are likely to intensify pressure on the Federal Reserve to raise interest rates this year, as economists expect the initial energy shock to continue propagating through supply chains and push up the costs of a broad range of products — even though US-Iran peace negotiations have sent oil prices tumbling. Gasoline prices have pulled back recently but remain nearly $1 per gallon above pre-war averages. Personal income rose 0.7% and wages and salaries advanced 0.4%, while inflation-adjusted disposable income gained 0.3% — the first increase since the start of the year. The savings rate held at 3%, the lowest since 2022, as workers across multiple sectors see pay gains lag inflation, prompting many to save less or rely on credit cards to maintain spending habits.