Fed's preferred inflation gauge hits 3-year high as gas and AI chip costs surge

Consumer prices rose 4.1% in May from a year earlier, the largest annual increase since April 2023, according to the Commerce Department's PCE index, the Federal Reserve's favored measure Source: AP. The jump was driven by expensive gas and surging semiconductor costs due to AI demand Source: The Guardian.

Key figures

• Annual inflation: 4.1% in May, up from 3.6% in April Source: AP
• Core inflation (excluding food and energy): 3.4% Source: AP
• Monthly inflation: 0.4%, matching April Source: The Guardian

Market and policy impact

Rising prices have kept the Fed from cutting rates this year; some economists now expect rate hikes instead Source: AP. New Fed Chair Kevin Warsh reaffirmed the 2% inflation target but gave no specific guidance Source: AP. The expectation of tighter policy hit tech stocks Source: The Guardian.

Broader economy

The US economy grew at a 2.1% annual pace in Q1, rebounding from a shutdown-affected Q4 Source: AP. However, consumer spending growth slowed Source: AP. Mortgage rates edged up to 6.49% Source: AP. Gas prices, which peaked near $4.50/gallon during the Iran conflict, have fallen to $3.92 but remain over 20% higher than last year Source: The Guardian. Apple raised prices on Macs and iPads, citing component cost increases Source: AP.

Outlook

Incomes rose for the first time in four months, which could support spending Source: AP. Still, inflation has exceeded the Fed's target for over five years, weighing on consumer sentiment Source: The Guardian.