WASHINGTON, June 30 (Xinhua) -- U.S. personal consumption expenditures (PCE), the Federal Reserve's preferred inflation measure, rose 6.3 percent in May over the past year, the Commerce Department reported on Thursday.
The latest data is another reminder that inflation has been persistently high, which would warrant the Fed's continued aggressive rate hikes at its upcoming policy meetings.
The PCE index grew by 0.6 percent in May from the previous month, and personal income grew 0.5 percent in the month, according to estimates released by the department's Bureau of Economic Analysis.
The so-called core PCE price index, which strips out volatile food and energy prices, rose 4.7 percent from a year ago, still well above the Fed's inflation target of 2 percent.
The Fed raised rates by 25 basis points in March, beginning its rate-hiking cycle as surging inflation in the United States smashed records in four decades. It continued to raise rates by 50 basis points in May.
In mid-June, the Fed raised its benchmark interest rate by 75 basis points, marking the sharpest rate hike since 1994, as recent inflation data indicated no clear sign of easing.
Fed Chair Jerome Powell said that since the May policy meeting, "inflation has again surprised to the upside," pushing the Federal Open Market Committee (FOMC) to adopt a larger rate hike.
"From the perspective of today, either a 50 or 75 basis point increase seems most likely at our next meeting," said Powell after the June meeting, leaving the door open for another 75-basis-point rate hike.
"Yesterday's GDP revisions that lowered estimates for first quarter consumer spending was just a jab; today's May personal income and spending report was the uppercut," Tim Quinlan and Shannon Seery, economists at Wells Fargo Securities, wrote in an analysis.
The third and final estimate of first-quarter GDP revised real PCE lower to reflect a 1.8 percent annualized pace of growth, down from the 3.1 percent in previous estimation.
Quinlan and Seery noted that the May personal income and spending report showed that inflation-adjusted consumer spending dropped 0.4 percent, adding that prior monthly spending figures were revised lower.
Real disposable personal income, which not only adjusts for price changes but also strips out taxes, slid another 0.1 percent in May and the level is now 5.4 percent below where it would be implied by its pre-pandemic trend, according to the analysis.
The decline in real disposable personal income shows that wage growth has been struggling to keep up with price increase.
Diane Swonk, chief economist at the major accounting firm Grant Thornton, noted that the only category of spending to eke out a gain after adjusting for inflation in May was the service sector.
"Spending on big-ticket vehicles and housing-related goods and nondurable goods, including food at the grocery store, were crimped by the surge in inflation we are enduring," said Swonk, adding that consumers are saying they are pulling back on plans for driving trips due to higher costs.
"Inflation burns and is taking a toll on the economy," Swonk said.
Quinlan and Seery, meanwhile, said they still think services spending will carry consumer spending through the summer, but once Labor Day comes, "the boost from services may not be enough to keep overall consumer spending in the black."