U.S. inflation rises to 4.1%, keeping Fed hike on the table

U.S. inflation accelerated again in May, with the personal consumption expenditures price index rising 4.1% from a year earlier. The reading pushed inflation back above 4.0% for the first time since April 2023 and kept alive the chance that the Federal Reserve could still raise rates later this year.

The Bureau of Economic Analysis said the monthly PCE price index rose 0.4% in May, while core PCE, which strips out food and energy, increased 3.4% from a year earlier after a 3.3% rise in April. Core prices also climbed 0.3% from the prior month. CNBC said the annual core reading was the highest since October 2023, underscoring how stubborn underlying inflation remained even as energy markets eased.

Household spending helped keep price pressure alive. Personal consumption expenditures increased $156.1 billion, or 0.7%, in May, and real PCE rose 0.3% after inflation adjustment, showing consumers were still buying even with higher prices. The BEA said spending on services accounted for $94.3 billion of the increase, while goods spending added $61.8 billion. Personal income rose $181.6 billion, or 0.7%, and disposable personal income also increased 0.7%. Personal saving reached $704.2 billion, with the saving rate at 3.0%.

The latest data came in line with a Reuters forecast for 4.1%, but the policy message was less comfortable for the Fed. Markets were already pricing in the possibility of a September rate hike, and Scott Anderson, chief U.S. economist at BMO Capital Markets, said PCE inflation was still too high and would likely keep the Fed on hold while it weighed another increase at upcoming meetings. Energy prices offered some relief after oil fell back toward pre-war levels following a preliminary peace deal involving the United States and Iran, but services inflation remained sticky.

The May report also carried political weight. Higher prices remain a liability for Trump and Republicans as they head toward the midterms, especially after consumers absorbed additional pressure from sweeping import tariffs and a cost-of-living fight that has not gone away. Trump made lowering inflation a central promise of his 2024 campaign, and the latest data showed why that pledge remains difficult to deliver while spending stays resilient.

The Bureau of Economic Analysis said the next personal income and outlays release is scheduled for July 30, 2026, at 8:30 a.m. EDT.