Skip to main content

Exclusive news, data and analytics for financial market professionalsLearn more aboutRefinitiv

People shop at Zabar's supermarket in New York City

People shop at Zabar's supermarket in New York City, U.S., November 26, 2025. REUTERS/Jeenah Moon Purchase Licensing Rights, opens new tab

  • Summary

  • Economists polled by Reuters had forecast annual PCE inflation at 4.1% in May

  • The Fed last week left its benchmark rate unchanged

  • Quarterly projections showed policymakers expected to raise borrowing costs this year

WASHINGTON, June 25 (Reuters) - U.S. inflation increased further in May, breaking above 4.0% ​for the first time in three years as the Middle East conflict boosted energy prices, and potentially ‌drawing the Federal Reserve closer to raising interest rates this year.

The personal consumption expenditures price index surged 4.1% in the 12 months through May, the largest increase and first reading above 4.0% since April 2023, the Commerce Department's Bureau of Economic Analysis said on Thursday. PCE inflation rose by an unrevised 3.8% in ​April.

Sign up here.

Economists polled by Reuters had forecast PCE inflation advancing 4.1%. The PCE price index climbed 0.4% month-on-month in May ​after increasing 0.4% in April.

The U.S.-led war against Iran has pushed up oil prices, driving ⁠gasoline prices higher. Though oil and gasoline prices have retreated in recent weeks amid a fragile ceasefire, economists expected inflation ​to remain elevated for a while.

President Donald Trump and his Iranian counterpart Masoud Pezeshkian last week signed a preliminary peace deal that ​would reopen oil and other shipping lanes that were frozen by the war.

Consumers were before the conflict already struggling with higher prices stemming from Trump's sweeping import tariffs.

The higher cost of living is a political liability for Trump and his Republican Party, seeking to retain control of Congress ​in the midterm elections in November, amid mounting frustration over his stewardship of the economy. Trump won the 2024 presidential ​election in part because of his promise to lower inflation.

Excluding the volatile food and energy components, the PCE price index increased 3.4% year-on-year in ‌May after ⁠rising 3.3% in April. The so-called core PCE inflation advanced 0.3% on a monthly basis after gaining 0.3% in April.

The U.S. central bank tracks the PCE inflation measures for its 2% target. The Fed last week kept its benchmark overnight interest rate in the 3.50%-3.75% range, but updated quarterly projections showed policymakers expected to raise borrowing costs this year amid growing concerns about ​inflation.

Financial markets are betting a ​rate hike could come ⁠as soon as in September, with another increase likely afterwards. Both headline and core PCE inflation were last below 2% in early 2021.

Despite the high inflation, consumers have maintained their spending, ​thanks to larger tax refunds this year as well as a stock market rally, which ​have cushioned some ⁠of the pain at the pump. Households are also tapping into savings and saving less.

Consumer spending, which accounts for more than two-thirds of economic activity, jumped 0.7% in May after rising 0.4% in April. Though some of the rise in spending reflects higher prices, consumption appears ⁠on track ​to speed up this quarter after slowing in the January-March quarter.

Gross domestic ​product estimates for the second quarter are currently as high as a 3.0% annualized rate. But with inflation outpacing wage gains, the tax filing season behind ​and savings dwindling, economists expect households will dial back spending in the third quarter.

Reporting by Lucia Mutikani; Editing by Chizu Nomiyama

Our Standards: The Thomson Reuters Trust Principles., opens new tab

  • X

  • Facebook

  • Linkedin

  • Email

  • Link

Purchase Licensing Rights

Read Next

Major brokerages' forecasts for S&P 500, global GDP growth in 2026

UK pensions should be invested in UK companies, industry group says

  • ago

Morning Bid: Microneconomics

  • agoANALYSIS

Wall Street trading to surge as Russell 1000 index set to add SpaceX, small-cap stocks

  • ago

Rupee ends a tad higher as oil slide, foreign inflows lift sentiment

Markets

Legalcategory · June 25, 2026 · 11:57 AM UTC · ago

Swiss asset manager Partners Group may slightly reduce the size of its evergreen funds in future while sticking to its overall strategy, ​Chairman Steffen Meister was quoted as saying by Bloomberg, after the ‌company recently capped withdrawals from a private equity fund.

10:08 AM UTC

June 24, 2026

June 23, 2026

June 22, 2026

Read Original at Reuters →