The core personal consumption expenditures price index — the Federal Reserve's preferred inflation gauge — rose 3.4% in May from a year earlier, the highest annual reading since October 2023. The PCE price index had been forecast to show a 4.1% annual increase.
The Gauge the Fed Uses — and Why It Is Different
The personal consumption expenditures price index is the inflation measure the Federal Reserve formally tracks when calibrating policy. Understanding why it matters starts with what separates it from the more familiar consumer price index.
Where the CPI captures prices for a fixed basket of goods, the PCE adjusts for how consumers shift their spending when individual prices change — moving toward a cheaper substitute, for instance. That flexibility gives it a broader scope and makes it more responsive to real-world behavior, which is why the Federal Reserve has designated it as its benchmark.
The "core" variant adds another layer of filtering: it strips out food and energy prices. Both categories can swing sharply on supply disruptions, seasonal patterns, or commodity moves that have little to do with the broader trajectory of inflation. Remove them and what remains is meant to isolate where underlying price pressure is actually heading, not where short-term volatility has pushed it.
May's 3.4% Print in Context
Two numbers define the May PCE release. The first is the core annual reading of 3.4% — the highest since October 2023, meaning this particular measure of underlying inflation has not been this elevated in roughly seven months. The second is the 4.1% annual increase that analysts had forecast for the PCE price index.
The 4.1% expectation and the 3.4% core print sit alongside each other in the May data. One reflects what the market projected for the full index heading into the release; the other shows what the Federal Reserve's preferred core gauge actually delivered. For policymakers whose formal inflation benchmark is the PCE, a core reading at a multi-month high is the figure that carries the most direct weight.