U.S. May PCE inflation rebounds to 4.1%, hitting a three-year high! Consumption and income unexpectedly strong, rate cut almost hopeless.

The U.S. Bureau of Economic Analysis (BEA) today (the 25th) released the May 2026 Personal Consumption Expenditures (PCE) price index. The data show clear signs of a rebound in U.S. inflation: the overall PCE year-over-year rate reached 4.1%, the highest level since April 2023; the core PCE year-over-year rate also rose to 3.4%. At the same time, benefiting from government relief legislation, both personal income and consumer spending increased by 0.7%—significantly exceeding market expectations.
(Background: U.S. Treasury Secretary Bessent has called out: Inflation will fall back to its target! Fed Chair Walsh will balance economic growth and price stability)
(Background supplement: The U.S. announced a 60-day lifting of “Iran oil sanctions,” the Hormuz Strait crisis is easing, and global inflation is expected to cool)

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• Inflation year-over-year rates both rebound, setting a recent high
• Income and consumer spending beat expectations; savings rate falls to 3.0%
• Overview of the May U.S. core economic data

U.S. inflation stickiness has re-emerged, creating uncertainty for the Federal Reserve’s future rate-cut path. According to the latest “Personal Income and Outlays” report released by the U.S. Bureau of Economic Analysis (BEA) at Beijing time on June 25, 2026, both the inflation indicators and consumption data for the U.S. in May showed an astonishing “heat,” indicating that overall economic demand remains very strong.

Inflation year-over-year rates both rebound, setting a recent high

As the Federal Reserve’s most favored inflation gauge, the May PCE price index did not cool as the market had hoped. The data show that the overall PCE price index rose 0.4% month-over-month in May (in line with expectations), but the year-over-year rate reached as high as 4.1% (previous value 3.8%). This not only matches the market’s high-side expectations, but is also the highest level since April 2023.

After excluding the more volatile food and energy prices, the core PCE price index also showed a warming trend. In May, core PCE rose 0.3% month-over-month (in line with expectations), and the year-over-year rate climbed to 3.4% (previous value 3.3%), setting a new high since October 2023. Overall, although the month-over-month rates broadly met Wall Street expectations, the clear rebound in year-over-year rates signals that the fight against inflation is not over yet.

Income and consumer spending beat expectations; savings rate falls to 3.0%

While prices are climbing, U.S. consumers’ spending power shows no signs of weakening. In May, Personal Consumption Expenditures (PCE) surged by $156.1 billion, with a month-over-month growth rate of 0.7%, far above the market expectation of 0.5%. Breaking down the consumption composition further: spending on services increased by $94.3 billion, while spending on goods rose by $61.8 billion. After adjusting for inflation, the real PCE month-over-month growth rate also reached 0.3%.

Behind this strong consumer spending is income growth that came in above expectations. In May, Personal Income rose 0.7% month-over-month (expected 0.4%), mainly thanks to an increase in wage compensation and the second round of disaster relief payments distributed under the “American Relief Act of 2025,” which significantly boosted the income of farm proprietors.

However, strong consumption has also eroded savings. The report shows that total U.S. personal savings in May were $704.2 billion, and the savings rate (as a percentage of disposable personal income) was only 3.0%, indicating that consumers are relying on drawing down savings to maintain their standard of living amid high prices.

Overview of the May U.S. core economic data

Below is a comparison of key data for April and May released by the BEA:

| Economic indicator (month-over-month rate) | | --- | | April 2026 (revised value) | | May 2026 | | --- | --- | | Personal Income (Current Dollars) | -0.1% | +0.7% | | Personal Consumption Expenditures (PCE) (Current Dollars) | +0.4% | +0.7% | | PCE Price Index (Headline) | +0.4% | +0.4% | | Core PCE Price Index (Core PCE) | +0.3% | +0.3% |

Source: U.S. Bureau of Economic Analysis