U.S. Inflation Eases Slightly in May as Consumer Spending and Income Decline

Hadisur Rahman, JadeTimes Staff

H. Rahman is a Jadetimes news reporter covering Business

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Image Source: Advisor Perspectives Charts

Inflation showed modest growth in May, with key economic indicators pointing to continued softening in consumer activity, according to a report released Friday by the U.S. Commerce Department.

The Personal Consumption Expenditures (PCE) price index, the Federal Reserve’s preferred inflation gauge, rose 0.1% on a seasonally adjusted basis for the month. On a year-over-year basis, inflation climbed 2.3%, in line with economists’ expectations. Core PCE, which excludes volatile food and energy prices, rose 0.2% monthly and 2.7% annually, slightly above forecasts of 0.1% and 2.6%, respectively.

The annual core inflation rate also ticked higher from April’s 2.6% level, continuing to drift above the Fed’s long-standing 2% inflation target, a level not seen since early 2021.

While inflation remained above target, consumer spending and income showed signs of weakness, underscoring concerns about economic momentum. Consumer spending declined 0.1%, missing forecasts for a 0.1% gain, while personal income fell 0.4%, defying projections for a 0.3% increase.

“This morning’s news was consistent with other reports showing the economy gradually losing momentum in the second quarter,” said Gary Schlossberg, market strategist at Wells Fargo Investment Institute. “It sets the stage for potential softness ahead, especially as the full impact of new tariffs comes into view this summer and fall.”

Despite the mixed data, financial markets remained calm, with stock futures pointing to a positive open and Treasury yields ticking higher. Investors are now watching the Federal Reserve’s next move closely, as it weighs whether to cut interest rates in the face of lukewarm economic data.

The report adds fuel to speculation about a possible rate cut in July, though analysts caution that the Fed is likely to take a measured approach. Schlossberg noted the data “keeps hopes alive” for a rate cut, but described the expectations as “premature.”

The Fed has faced increasing political pressure from President Donald Trump, who has been vocal in calling for rate cuts, arguing that inflation is under control and that the central bank can adjust later if needed. Earlier this week, Trump intensified his criticism of Fed Chair Jerome Powell, calling him “stupid” and suggesting a replacement may be forthcoming.

Powell, for his part, has maintained a cautious stance, emphasizing data-dependency and resisting political pressure amid concerns about long-term economic stability.

The inflation data revealed continued disparities between goods and services:

• Food prices rose 0.2% in May.

• Energy prices dropped 1%, including a 2.2% decline in gasoline and other energy goods.

• Shelter costs climbed 0.3%.

• Services rose 3.4% from a year ago, while goods increased just 0.1%.

With inflation pressures largely contained, policymakers now face a complex landscape of sluggish income growth, weakening spending, and geopolitical uncertainty, as the Fed seeks to balance its dual mandate of price stability and full employment.