A Commerce Department report on Friday said the prices paid by consumers rose slightly in May, but annual inflation rates were even further apart from the Federal Reserve targets.
The Fed’s main inflation reading, the Personal Consumption Expense Price Index, surpassed the month’s seasonally adjusted 0.1%, with annual inflation rates of 2.3%. Economists surveyed by Dow Jones were looking for levels of 0.1% and 2.3% respectively.
Excluding food and energy, Core PCE was listed at 0.2% and 2.7% respectively, compared with estimates of 0.1% and 2.6%. Fed policymakers believe that Core is a better measure of long-term trends due to the historic volatility of two categories. The annual rate was 0.1% points compared to reading in April.
The Fed is targeting 2% inflation, a level not seen in early 2021.
In addition to inflation numbers, consumer spending and income showed further signs of weakening. Expenses fell 0.1% that month, compared to estimates of an increase of 0.1%. Personal income fell 0.4%, compared to forecasts of 0.3%.
The market had little response to data. Stock market futures have shown a positive opening on Wall Street, but Treasury yields have also risen.
“The news this morning was in line with other reports showing that the economy was gradually losing momentum in the second quarter, ahead of the expected tariff rise in the summer and early fall.”
The report comes with the Fed considering the next move in interest rates. Schlossberg said the report would help “keep hope alive” for interest rate cuts in July, but he still sees such a story as “premature.”
The market primarily expects the central bank to remain pending at the meeting in late July. However, since inflation data took office in January, as long as there has been a calm pressure from tariffs since the tariff president took office, a few recent officials have advocated for cuts.
Trump is pushing to ease the Fed, claiming that if inflation rates are low and the central bank starts to rise again, the central bank can always switch gears.
But Fed Chairman Jerome Powell advocates a more cautious approach despite offensive pressure from the president. Trump has been regularly criticizing Powell recently, calling him “silly” earlier this week, indicating that he will soon be naming his successor.
Inflationary pressures were generally muted in May.
Food prices rose 0.2%, offset by a 1% decrease in energy-related goods and services costs, including 2.2% slides of gasoline and other energy goods. Shelter prices increased by 0.3%.
Service prices have been responsible for most of the upward pressure on inflation, as they recorded a 3.4% increase from a year ago. Products are up just 0.1%.
