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PCE inflation hit 4.1% YoY in May, the highest in three years, matching forecasts and keeping the Fed on hold as markets price in one more rate hike.
The headline PCE price index climbed 4.1% year‑over‑year in May, the strongest pace since April 2023 and in line with economists’ expectations, underscoring persistent price pressures as the Fed evaluates its next policy move【1】.
| At a glance | |
|---|---|
| PCE YoY | 4.1% (↑ from 3.8% in April) |
| Core PCE YoY | 3.4% (↑ from 3.3% prior) |
| Monthly PCE change | +0.4% (0.1 p.p. below consensus) |
| Market reaction | FedWatch tool shows 37% chance of a hold at September FOMC, down from 34% a day earlier【2】 |
The 4.1% headline figure reflects a year‑over‑year jump that matches the consensus forecast, while the month‑to‑month increase of 0.4% fell 10 basis points short of the poll. Core PCE, which strips out food and energy, rose 3.4% YoY—slightly above the 3.3% analysts had penciled in. The surge is tied to higher energy costs stemming from the Iran conflict, which has pushed gasoline and broader energy prices upward despite a recent easing after the Strait of Hormuz reopened【1】.
Despite the inflation uptick, consumer spending grew 0.7% in nominal terms and 0.3% in real terms, driven largely by services such as health care and financial insurance【3】. Personal income also rose 0.7%, but a sizable share came from a one‑off farm relief payment, not from broad wage gains【3】. Real disposable income edged up 0.3% after three months of decline, while the personal saving rate held at a low 3.0%, the weakest level since mid‑2022【1】.
The data left investors largely unchanged on the Fed’s policy path. The CME Group’s FedWatch tool now places a 37% probability that the September FOMC will leave rates unchanged, up from 34% the previous day, while the odds of a 25‑basis‑point hike sit at about 48.5%【2】. The modest monthly miss helped temper expectations for multiple hikes, but the still‑elevated core inflation keeps the Fed’s 2% target out of reach.
The 4.1% PCE reading confirms that inflation remains well above the Fed’s 2% goal, keeping policy uncertainty high and leaving markets to balance between a potential rate hike and the risk of a prolonged hold. The next data releases will be crucial in determining whether the upward pressure eases or intensifies.
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AI-assisted synthesis by the TrendWatcher Editorial Desk · sourced from 3 outlets · Jun 28, 2026 · How we report
The U.S. personal consumption expenditures price index rose 4.1% YoY in May, the largest annual increase since April 2023.
Australia’s trimmed‑mean underlying inflation was 3.6% YoY in May, slightly above the 3.5% forecast, while headline inflation was 4% YoY.
Japan’s core CPI was 1.6% YoY in June, close to the BOJ’s 2% annual target, prompting a recent 25‑basis‑point rate hike.