U.S. Inflation Increased in May According to PCE Report, with Consumers Reducing Their Expenditure
Pulling back on spending as inflation squeezes wallets
We've got the latest on consumer spending and inflation for you! May saw a slight hike in the Personal Consumption Expenditures price index (PCE), meaning inflation remains a persistent issue, hovering above the Federal Reserve's 2% annual target.
In detail, prices increased 2.3% year-over-year compared to April's rate of 2.1%. However, core prices, which exclude food and energy categories, jumped to 2.7% yearly, marking a rise from the previous month's 2.5%.
Now, inflation isn't showing a significant impact from President Trump's tariffs yet. Federal Reserve Chair Jerome Powell warned of a potential resurgence of inflation during the summer as tariffs make their way to consumers. Nonetheless, spending last month saw a slight dip for the first time since January, indicating a possible payback following an earlier increase in purchasing activity before tariffs hit.
According to Greg Wilensky, head of U.S. fixed income and portfolio manager at Janus Henderson, this spending drop shouldn't be overread. Incomes also experienced a drop, primarily due to a one-time adjustment to Social Security benefits that boosted payments in March and April.
The enriching facts reveal that J.P. Morgan Research predicts tariffs could nudge headline inflation up by about 0.2 percentage points, possibly pushing PCE prices up by 1-1.5% in 2025, primarily in the middle quarters. While household spending has shown restraint under the pressure of tariff-induced price increases, this pressure has not yet dragged inflation metrics into a steep ascent.
In essence, although tariffs have contributed to a gradual rise in inflation, it's yet to spark a significant or speedy spike. Analysts remain diligent, as they anticipate the tariff-induced inflation to become more noticeable as we advance through the year.
The ongoing inflation, combined with tariffs, has led some analysts to predict a potential increase in finance-related news for businesses, as J.P. Morgan Research anticipates tariffs could push PCE prices up by 1-1.5% in 2025. With consumer spending dipping in May, finance professionals are closely monitoring the impact of tariffs on the business sector.
