Inflation in the United States cools and spending rises moderately

Economists polled by Reuters had expected the PCE price index to remain unchanged on the month and rise 2.6 percent from a year earlier.

Inflation is retreating after skyrocketing in the first quarter, as the US central bank’s rate hikes from 2022, of 525 basis points, cool domestic demand. However, inflation remains above the Federal Reserve’s 2% target.

Excluding the volatile food and energy components, the PCE price index rose 0.1% last month, and April data was revised up to 0.3% from 0.2%.

Core inflation rose 2.6% year-over-year in May, the smallest gain since March 2021, after rising 2.8% in April. The Fed tracks PCE price measures to guide monetary policy. Monthly increases of 0.2% are required to bring inflation back to target.

The Fed has kept its benchmark overnight interest rate in the current range of 5.25%-5.50% since July last year. While policymakers have recently adopted a more restrictive stance, financial markets expect the Fed to begin its easing cycle in September.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose 0.2% last month, following 0.1% in April, the report said. Inflation fatigue, rising borrowing costs, moderating wage increases and declining savings are holding back spending.