US inflation hits 4.1% in May, highest since April 2023

Inflation kept climbing in May, pushing the Federal Reserve’s preferred price gauge to 4.1% and making it harder for households to see relief in mortgage rates, auto loans and credit-card bills. The Commerce Department’s Bureau of Economic Analysis said the headline personal consumption expenditures index rose at its fastest annual pace since April 2023, breaking above 4.0% for the first time in three years.

The increase was not limited to one narrow corner of the economy. Excluding food and energy, core PCE rose 3.4% from a year earlier, up from 3.3% in April, while the monthly core gain was 0.3%, the strongest since October 2023. Energy prices tied to the Middle East conflict helped drive the headline number higher, but the core reading showed that price pressure remained sticky beyond the most volatile categories.

For households, the problem is that sticky inflation keeps the Fed cautious at the very moment borrowers are looking for cheaper credit. If the central bank delays rate cuts, mortgage rates are less likely to fall quickly, and consumers carrying revolving credit card balances will keep paying elevated interest costs. Car buyers, too, are likely to find auto financing expensive if policymakers decide the May data is too hot to ignore.

The report also showed that consumers kept spending even as prices rose. Personal consumption expenditures increased 0.7% in May, and personal income rose 0.7%, or $181.6 billion, according to the Bureau of Economic Analysis. The personal saving rate edged up to 3.0%, a sign that households were still finding room to save, but not by much. Headline PCE had been 3.8% in April, 3.5% in March and 2.9% in both February and January, underscoring how quickly inflation has accelerated since the start of the year.

The Federal Reserve targets 2% inflation over the longer run using PCE, not CPI, and May’s reading moved further away from that goal. The hotter number complicates the case for rate cuts later this year and keeps inflation at the center of the political debate for President Trump and Republicans heading toward the November midterm elections.