The numbers: The cost of goods and services rose a scant 0.1% in May and pointed to a gradual easing in U.S. inflation, but prices were still rising sharply in key parts of the economy.

The increase in the personal-consumption expenditures index matched the Wall Street forecast. The PCE index is the Federal Reserve’s preferred inflation barometer.

The increase in prices over the past year slowed to 3.8% from 4.3% and dropped to the lowest level since April 2021, the government said Friday.

Waning gas and food prices have played a big role in restraining inflation this year.

The rise in the so-called core PCE rate of inflation over the past year dipped to 4.6% from 4.7%.

A separate gauge that omits food and energy rose 0.3% but was in line with Wall Street estimates.

Yet the core rate fell more slowly than the headline number and suggests inflation is likely to persist for some time. The core rate has ranged from 4.6% to 4.8% over the past seven months.

Core PCE is viewed by the Fed as the best predictor of future inflation trends.

Big picture: Inflation is slowing, but it’s still too high for the Fed. Senior Fed officials worry that rising labor costs and price increases in major parts of the economy such as housing could keep inflation at elevated levels for a few more years.

The latest PCE report is unlikely to give the Fed reason to continue to pause rate hikes at its next big meeting in July.

The central bank skipped a rate increase last month for the first time in 11 meetings since the spring of 2022 to try to figure out how much its prior rate hikes have slowed the economy.

Looking ahead: “Right now, the Fed’s job is not clear cut,” said chief investment officer George Mateyo at Key Private Bank. “Next week’s June employment report will be the next major data point to assess and likely the key indicator in determining the Fed’s next move.”

Market reaction: The Dow Jones Industrial Average
and S&P 500
were set to open higher in Friday trades. The yield on the 10-year Treasury note
edged down to 3.82%.


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