Inflation gauge tops 4% for first time since 2023

WASHINGTON — U.S. inflation increased further in May, breaking above 4% for the first time in three years as the Middle East conflict boosted energy prices, and potentially drawing the Federal Reserve closer to raising interest rates this year.

The personal consumption expenditures price index surged 4.1% in the 12 months through May, the largest increase and first reading above 4% since April 2023, the Commerce Department's Bureau of Economic Analysis said Thursday. PCE inflation rose by an unrevised 3.8% in April. The Fed tracks the PCE inflation measures for its 2% target.

Excluding the volatile food and energy components, the PCE price index increased 3.4% year-on-year in May after rising 3.3% in April. The so-called core PCE inflation advanced 0.3% on a monthly basis after gaining 0.3% in April.

Still, consumers maintained their spending, thanks to larger tax refunds this year as well as a stock market rally.