The Federal Reserve’s preferred inflation gauge rose to a new three-year high of 4.1% annually in May, driven by higher gas prices and increased costs for computer equipment due to the AI buildout. According to the Commerce Department's report on Thursday, this marks the largest annual increase since April 2023. On a monthly basis, inflation was 0.4% last month, matching April's increase and down from 0.7% in March. This rise poses political challenges for President Trump as midterm elections near.
Key Takeaways
The Federal Reserve’s preferred inflation gauge rose to a three-year high of 4.1% annually in May, driven by gas prices and increased costs for computer equipment due to AI demand. Core prices also increased, while consumer spending remained strong despite rising costs.
- Fed's PCE index hits highest level since April 2023 at 4.1%
- Gas prices peaked near $4.50/gallon in May but have fallen to $3.92
- Core inflation rose to 3.4% annually, up from 3.3% in April
- Consumer spending and incomes adjusted for inflation both increased by 0.3%
- New Fed chair Kevin Warsh emphasizes commitment to 2% target without specifying steps
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▼Source Claims Check
High ConsensusAll 5 publishers report consistent facts across 6 key claims.
| Claim | Status | Reason | |
|---|---|---|---|
| Annual Inflation Rate | Broad Agreement | 4.1% in May from a year earlier | |
| Monthly Inflation Rate | Broad Agreement | 0.4% last month, matching April's increase and down from 0.7% in March | |
| Core Prices Annual Change | Broad Agreement | 3.4% in May compared with a year earlier, up from 3.3% in April | |
| Core Prices Monthly Change | Broad Agreement | 0.3% from April to May, the same as the previous month | |
| Consumer Spending Change | Broad Agreement | Adjusted for inflation spending increased by 0.3% from April to May | |
| Incomes Change Adjusted For Inflation | Broad Agreement | Rose for the first time in four months, picking up 0.3% |
Annual Inflation Rate
Broad Agreement4.1% in May from a year earlier
Monthly Inflation Rate
Broad Agreement0.4% last month, matching April's increase and down from 0.7% in March
Core Prices Annual Change
Broad Agreement3.4% in May compared with a year earlier, up from 3.3% in April
Core Prices Monthly Change
Broad Agreement0.3% from April to May, the same as the previous month
Consumer Spending Change
Broad AgreementAdjusted for inflation spending increased by 0.3% from April to May
Incomes Change Adjusted For Inflation
Broad AgreementRose for the first time in four months, picking up 0.3%
This analysis is AI-generated and may not perfectly represent each source's reporting. Always read the original articles for full context.
The increase was largely driven by more expensive gas, as well as pricier semiconductors and other computer equipment that are in high demand for the AI buildout. Rising prices have caused the Federal Reserve to keep its key rate unchanged this year, a reversal from January when they had penciled in two cuts. Some economists now forecast that the central bank could lift rates instead.
New Fed chair Kevin Warsh last week underscored the central bank's determination to drive inflation back to its 2% target, but he gave no sign of what steps the Fed might take. Oil and gas prices have fallen substantially since Trump agreed to a peace deal with Iran, but the conflict lifted gas prices to nearly $b4.50 a gallon on average nationwide last month. They have since fallen back to $3.92 as of Thursday, according to AAA.
Excluding the volatile energy and food categories, core prices rose 3.4% in May compared with a year earlier, up from 3.3% in April and the largest increase since October 2023. On a monthly basis, they rose 0.3% from April to May, the same as the previous month.
The report also showed that consumer spending rose at a solid pace, with adjusted for inflation spending increasing by 0.3% from April to May. Incomes, adjusted for inflation, rose for the first time in four months, picking up 0.3%, which could bolster consumer spending in coming months.
Inflation has been above the Fed’s 2% target for more than five years, leaving many Americans more gloomy about the future. The report covers the personal consumption expenditures price index, a lesser-known measure compared to the consumer price index, which was released earlier this month and showed a similarly large increase.
How this summary was created
This summary synthesizes reporting from 5 independent publishers using AI. All sources are cited and linked below. NewsBalance is a news aggregator and media literacy tool, not a news publisher. AI-generated content may contain errors or inaccuracies — always verify important information with the original sources.