The core Personal Consumption Expenditures (PCE) Price Index, the Federal Reserve’s preferred inflation gauge, rose 0.3% month-on-month, taking the annual rate to 3.2%, according to data from the Commerce Department. The reading matched estimates and marked the highest level since November 2023.
Including food and energy, inflation rose 0.7% for the month, with the annual rate at 3.5%, largely driven by a sharp rise in energy costs.
Economic growth, however, showed signs of moderation. Gross domestic product (GDP) expanded at an annualised rate of 2% in the first quarter (Q1), up from 0.5% in the previous quarter but below expectations of 2.2%.
At the same time, the labour market remained tight. Initial jobless claims fell to 189,000 for the week ended April 25, the lowest level since September 1969, pointing to continued stability in hiring trends.
“This is a split-screen economy,” Heather Long, Chief Economist at Navy Federal Credit Union, told CNBC International. “Companies and investors involved in AI are on fire. Meanwhile, middle and moderate income households are struggling with high gas prices and inflation that’s back at the hottest level in three years.”
The inflation surge was largely driven by goods prices, which rose 1.4%, including an 11.6% jump in energy-related categories. Services inflation was more moderate at 0.3%.
Higher fuel costs appeared to weigh on consumer spending. Personal consumption rose just 1.6%, with spending on goods declining 0.1%. A key measure of underlying demand — real final sales to private domestic purchasers — rose 2.5%.
Government spending also supported growth, increasing 4.4% overall, including a 9.3% rise at the federal level.
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The data comes a day after the Federal Reserve held interest rates steady, though dissent within the Federal Open Market Committee highlighted divisions over the policy path, particularly as inflation remains above target while the labour market stabilises.
