Fed’s preferred inflation metric slows to 2.6% in May in line with expectations

The Federal Reserve's preferred inflation gauge slowed in May in line with expectations, but remains above the policymakers' target of 2%.

According to data from the Bureau of Economic Analysis (BEA) released on June 28, the annual rate of Personal Consumption Expenditures (PCE) price inflation slowed to 2.6% in May, after recording a growth of 2.7% in the previous two months.

The core PCE price index, which excludes the volatile food and energy prices and is closely monitored by the Federal Reserve, also slowed to 2.6% in May, down from 2.8% in April.

This is the lowest annual growth rate for the index since March 2021, when it first topped the US central bank’s target during the current economic cycle.

On a monthly basis, PCE prices remained unchanged in May after rising by 0.3% in each of the previous three months, while the core PCE price index appreciated by 0.1% after a 0.3% rise in April.

The data indicated that the annual growth in core PCE prices was driven by a 0.6% increase in spending on goods and a 0.1% increase in spending on services.

Personal consumption expenditures grew by 0.2%, or $47.8 billion, month-on-month in May, with spending on services rising by $34.2 billion and spending on goods increasing by $13.6 billion.