#USCorePCEMay US Core PCE inflation rose to 2.7% in May 2025, exceeding expectations and moving further away from the Federal Reserve's 2% target. Here's a breakdown of the key figures¹ ²:
- *Core PCE Inflation*: Increased by 0.2% month-over-month and 2.7% year-over-year, surpassing forecasts of 0.1% and 2.6% respectively
- *Headline PCE*: Rose by 0.1% month-over-month and 2.3% year-over-year, aligning with expectations
- *Goods and Services Inflation*: Goods inflation increased by 0.3% month-over-month, while services inflation remained high at 3.1% year-over-year
- *Shelter Costs*: Continued to pressure core figures, staying stubbornly high
The rise in core PCE inflation may complicate the Federal Reserve's decision-making process regarding interest rates. Markets reacted with volatility, with US equities giving up midday gains, bonds rallying, and the dollar reversing.³
*Market Implications:*
- *Interest Rate Decisions*: The Fed may need to reassess its rate cut trajectory in light of the rising inflation
- *Economic Growth*: Consumer spending dropped 0.1%, while personal income declined by 0.4%, hinting at softening demand
- *Inflation Trends*: Structural factors like wage rigidity and supply-side bottlenecks may be contributing to the stickiness in core PCE inflation
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