The Fed’s preferred inflation measure rose 4.7% in May, near multi-decade highs

Inflation held stubbornly high levels in May, although the monthly increase was slightly less than expected, according to the Ministry of Commerce scale Watched closely by the Federal Reserve.

Core PCE prices are up 4.7% from a year ago, 0.2 percentage point lower than the previous month but still around levels last seen in the 1980s. Wall Street was looking for a reading of around 4.8%.

On a monthly basis, the measure, which does not include volatile food and energy prices, rose 0.3%, just below the Dow Jones estimate of 0.4%.

The headline inflation rate, however, rose 0.6% for the month, much faster than its 0.2% rise in April. That kept year-on-year inflation at 6.3%, the same rate as April, and slightly down from 6.6% in March, which was the highest reading since January 1982.

In addition, the report reflected pressures on consumer spending, which accounts for nearly 70% of all economic activity in the United States

While personal income rose 0.5% in May, ahead of estimates of 0.4%, income after taxes and other fees, or personal disposable income, fell 0.1% in the month and 3.3% from a year ago. Inflation-adjusted spending fell 0.4%, a sharp decline from its 0.3% gain in April, although it rose 2.1% on an annual basis.

“The rising cost of living absorbed all the increased purchasing power from additional jobs and higher wages in May,” said Bill Adams, chief economist at Comerica Bank. “Americans are running faster just to stay on par. No wonder consumer confidence is in a hole.”

Goods inflation rose 9.6% while services prices rose 4.7%, both up 0.1 percentage point from April.

The personal savings rate rose to 5.4%, up 0.2 percentage points from the previous month.

Federal Reserve officials are watching the data closely as they seek to control hyperinflation. Central bank policymakers generally monitor core inflation closely because they believe monetary policy is less effective in controlling the rise and fall of gas and grocery prices.

However, Federal Reserve Chairman Jerome Powell has said in recent days that he is also watching key numbers closely as well as average gas prices of around $4.86 a gallon.

The Consumer Price Index, which measures a wide range of goods and services and is closely watched by the public, rose 8.6% in May, its highest level since late 1981.

In other economic news Thursday, the Labor Department reported that unemployment claims fell to 231,000 in the week ending June 25. This was a decrease of 2,000 from the previous period although 1,000 higher than estimates.

Continuing claims, which came a week behind the headline figure, totaled 1.33 million, down slightly from the previous week.