The Fed’s favorite inflation measure rose 4.7% in May, a multi-year high

A customer counts their cash at the checkout while purchasing an item at a Best Buy store in Flushing, New York.

Jessica Rinaldi | Reuters

Inflation held at stubbornly high levels in May, although the monthly increase was slightly less than expected, according to a Commerce Department gauge closely monitored by the Federal Reserve.

Personal consumption expenditure prices increased by 4.7% year-on-year, down 0.2 percentage points from the previous month but still at the level of the last 1980s. Wall Street had been looking for value around 4.8%.

On a monthly basis, the metric, which excludes volatile food and energy prices, rose 0.3%, slightly less than the Dow Jones estimate of 0.4%.

However, headline inflation shot higher, rising 0.6% for the month, much faster than April’s 0.2% gain. As a result, year-on-year inflation remained at 6.3%, the same as in April and slightly below March’s 6.6%, the highest since January 1982.

In addition, the report reflected the pressure on consumer spending, which accounts for almost 70% of total economic activity in the US

While personal income rose 0.5% in May, ahead of the 0.4% estimate, income after taxes, or personal disposable income, fell 0.1% month-on-month and 3% year-on-year .3% back. Inflation-adjusted spending fell 0.4%, a sharp decline from April’s 0.3% increase, although it is up 2.1% year-on-year.

Goods inflation rose 9.6%, while services prices rose 4.7%, both 0.1 percentage points higher than in April.

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

Fed officials are watching the data closely as they try to control runaway inflation. Central bank policymakers generally keep a closer eye on core inflation because they believe monetary policy is less effective at controlling the ebb and flow of gas and food prices.

However, Fed Chair Jerome Powell said in recent days that he is also watching the headlines closely and that gas prices are averaging about $4.86 a gallon.

The consumer price index, which measures a wide range of goods and services and is closely monitored by the public, rose 8.6% in May, the highest since late 1981.

In other news on Thursday, the Labor Department reported that jobless claims fell to 231,000 in the week ended June 25. That was down 2,000 from the previous period, although 1,000 higher than the estimate.

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