PCE Inflation Hits Three-Year High as Price Pressures Intensify
By Juliegrace Brufke | Quincy News Correspondent
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Washington (Quincy News) — U.S. inflation climbed to its highest level in more than three years in May, the federal government reported Thursday, as higher energy prices continued to filter through the broader economy.
The Personal Consumption Expenditures (PCE) price index rose 4.1% since this time last year, the Bureau of Economic Analysis reported, up from 3.8% in April and the third consecutive month the number moved higher. Core PCE, which strips out food and energy and serves as the Federal Reserve’s preferred inflation benchmark, climbed 3.4% year over year, its fastest pace since late 2023. The Fed’s inflation target is 2%, a level headline PCE has remained above for roughly five years.
Consumer outlays rose 0.7% in May, ahead of the 0.6% analysts had projected. Personal income climbed by the same amount, well above the 0.4% forecast and the personal saving rate nudged up to 3%.
David Mitchell, professor of economics and director of the Bureau of Economic Research at Missouri State University, said the numbers weren’t surprising.
“Inflation has not been tamed,” Mitchell said. “It builds upon itself. Once people get into the psyche that prices are going up, they respond differently than if prices are relatively stable.”
Oil and gas prices began spiking in late February as U.S. military operations against Iran escalated, and Mitchell argued those costs had months to filter into goods and services well beyond the pump.
“There’s been plenty of time for those increases in gas and oil prices to start filtering into the broader economy,” he told Quincy News in an interview. “It’s a continual problem that will continue to get worse until the Fed starts taking it much more seriously.”
The report landed a week after the Fed wrapped up its June policy meeting, where officials dropped expectations for rate cuts this year and signaled they were prepared to raise rates if inflation remained elevated.
Policymakers lifted their full-year inflation forecasts to 3.6% for headline PCE and 3.3% for core. The Federal Open Market Committee pledged in its post-meeting statement to deliver price stability after missing its own goal for five consecutive years.
Markets were largely unmoved following the report with stocks holding steady and Treasury yields dipping modestly. Traders still expect a rate hike before year’s end, with September seen as the most likely window.
Mitchell questions whether the Fed has a viable plan.
“It doesn’t look like they’re doing much of anything to address it,” he said. “They’re just hoping the problem goes away on its own, and it’s not going to. It becomes its own self-feeding monster.”
He pointed to the 1970s as a warning, adding that inflation ran for years before the Fed finally acted aggressively under Chair Paul Volcker in the early 1980s, pushing the economy into a painful recession. It worked, and the lower inflation that followed lasted for decades.
“They spent roughly 40 years trying to squeeze inflation out of the economy,” Mitchell said. “It’s almost like they’re throwing away 40 years’ worth of work by letting it creep back.”
The next PCE report is scheduled for July 30, 2026.
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