PCE inflation report May 2026:

The Federal Reserve’s primary price gauge rose at its highest level since 2023, reinforcing the central bank’s recent tough talk on inflation.

Excluding food and energy, the personal consumption expenditures price index showed a 3.4% annual rate after rising 0.3% for the month, both in line with the Dow Jones consensus. The annual core reading was the highest since October 2023.

For the all-items reading, the PCE index showed inflation running at a seasonally adjusted 4.1% annual rate, the highest since April 2023, according to a Commerce Department report Thursday. On a monthly basis, the PCE accelerated 0.4%. The annual level was in line with the Dow Jones consensus estimate while the monthly reading was 0.1 percentage point below.

While Fed officials look at both headline and core rates, they generally consider the latter a better measure of long-run trends, particularly in light of this year’s inflation surge that was driven largely by an acceleration in energy prices tied to the Iran war that have slowly been seeping into other parts of the economy.

Stock market futures held in positive territory following the release while Treasury yields slipped. Traders continued to expect the Fed to approve a rate hike in September, though they lowered odds slightly.

Energy again provided the largest source of price gains, with related goods and services prices up 4% for the month. Housing cost rose 0.3%, while financial services and insurance jumped 1.2%.

“Inflation is at a 3-year high due to the war in Iran and it’s painful for middle-class and moderate-income Americans,” said Heather Long, chief economist at Navy Federal Credit Union. “People are spending more on gas, along with healthcare and utilities. New Fed Chair Kevin Warsh has made his commitment clear to bring inflation down. The key will be how much relief happens by September.”

Even with the elevated inflation levels, consumer spending for the month came in stronger than expected.

Personal consumption expenditures, a proxy for spending, rose 0.7% for the month, 0.1 percentage point above the forecast and ahead of the inflation rate. Personal income also climbed 0.7%, well above the 0.4% forecast. The personal saving rate rose to 3%.

The report comes a little more than a week after the Fed and Warsh delivered what markets widely viewed as a tough talk on rates and inflation.

Warsh in particular stressed the importance of price stability, with the Federal Open Market Committee adopting language in its post-meeting statement unequivocally stating that it would “deliver price stability” after missing its 2% inflation target for five years running. In addition, officials took off a previously indicated rate cut this year and indicated a likelihood of a hike.

However, the inflation picture has been complicated. Fed officials generally look through the kind of supply-driven spike that the energy surge has driven, but concerns are rising that price increases are becoming more widespread and also are being fed by tariffs.

Multiple Fed officials dissented at the April meeting because the statement had included “forward guidance” that titled toward further cuts coming, and that language was removed from last week’s statement.

Other data released Thursday shows the economy in a relatively strong position.

Gross domestic product, the broadest measure of growth, rose at a seasonally adjusted annualized pace of 2.1% in the first quarter, according to the last of three readings. That was up from the prior indication of 1.6% and better than the forecast for 1.7%. The Commerce Department said the change largely reflected a downward revision to imports, which subtract from GDP.

Also, initial jobless claims fell to 215,000 for the week ended June 20, down 12,000 from the prior reading and better than the estimate for 223,000.