June 27, 2025
PCE Report: Consumer prices saw a slight increase in May. A new report from the Commerce Department, released Friday, highlights this trend.
The personal consumption expenditures (PCE) price index—used by the Federal Reserve to track inflation—rose by 0.1% for the month after seasonal adjustment.
Every year, inflation now stands at 2.3%. That moves it a bit further from the Fed’s long-term target. Economists polled by Dow Jones had predicted the same numbers—0.1% monthly and 2.3% annually.
When food and energy are excluded, core PCE showed monthly and yearly increases of 0.2% and 2.7%, respectively. These figures were slightly above expectations, which were 0.1% for the month and 2.6% for the year.
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Fed officials often rely more on core inflation. That’s because food and energy prices tend to fluctuate a lot. The yearly core rate was also 0.1 percentage point higher than in April.
The Federal Reserve aims to keep inflation around 2%. But inflation hasn’t been at that level since early 2021.
Inflation wasn’t the only thing in focus.
Consumer spending and income both showed fresh signs of weakness.
Spending dropped by 0.1% in May. Economists had actually expected a 0.1% increase. Personal income also fell by 0.4%. That’s far below the forecasted rise of 0.3%.
Despite the weaker data, markets remained steady. Stock futures pointed to a positive start on Wall Street. At the same time, Treasury yields moved higher.
Gary Schlossberg, a market strategist at Wells Fargo Investment Institute, shared his thoughts on the latest data.
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He said the numbers match other signs that the economy is slowly losing steam in the second quarter. This slowdown comes ahead of expected tariff hikes during summer and early fall.
The report also arrives as the Federal Reserve weighs its next move on interest rates. According to Schlossberg, the data keeps “hopes alive” for a possible rate cut in July.
However, he believes it’s still too early to be sure and called such expectations “premature.” Most investors expect the Federal Reserve to keep interest rates steady at its late July meeting.
Still, some Fed officials have recently supported the idea of a rate cut. They believe a cut could happen—if inflation stays calm despite the tariffs introduced by President Donald Trump since he took office in January.
Meanwhile, Trump has been urging the Fed to lower rates. He argues that inflation is under control. And if prices rise again, the Fed can adjust its policy later.
Fed Chair Jerome Powell has taken a more careful stance.
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He’s staying cautious, even as pressure from President Trump continues to grow.
Recently, Trump has stepped up his criticism of Powell.
Earlier this week, he even called Powell “stupid” and hinted that a replacement might be announced soon. Meanwhile, inflation remained mostly under control in May.
Food prices went up by 0.2% in May.
However, that increase was balanced out by a 1% drop in energy-related costs.
Gasoline and other energy goods saw a sharp decline of 2.2%.
Shelter costs continued to rise, going up by 0.3%. The main driver of inflation lately has been services. Over the past year, service prices have jumped by 3.4%.
In contrast, prices for goods have barely moved, rising only 0.1%.
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