The Fed's preferred gauge of inflation points to another possible rate hike

Data from Friday show the gauge of inflation preferred by the U.S. Federal Reserve increased from May to April, suggesting lending rates will remain elevated in the world's largest economy.

The Commerce Department reported that personal consumption expenditures increased by 0.4% in April, after a lackluster increase of 0.1% month-on-month to March.

Over the 12-month period ending in April, the PCE price index increased by 0.2% from the prior month to reach 4.4%.

James Knightley, the chief international economist for investment bank ING, said the uptick could lead policy makers at the Federal Reserve to increase lending rates again as the work to bring inflation closer to their 2% target rate.

Inflation is expected to slow during the second half of the year, he added, but the Fed may be running out of patience.

"So, if we get a positive conclusion to the debt ceiling drama and next Friday's jobs number comes in at around 200,000, we would have to say the odds will favor a 25 basis-point hike in June," he said.

The Commerce Department provided mixed data on food and energy prices, with the former increasing by 6.9% over the 12-month period to April and the latter dropping by 6.3%. So-called core PCE, which strips out food and energy, increased by 4.7% annually, led by gains in the price for both goods and services.

Dallas Fed President Lorie Logan said earlier this month that inflation was "much too high."

Meetings from the U.S. central bank's early-May meetings, published Wednesday, showed concerns about a sharp slowdown in economic activity were "appearing" to fade away as the fears about the financial sector recede, though there are other areas of concern.

"Financing conditions continued to be restrictive, and borrowing costs remained elevated," the minutes read.

The Beige Book, a summary of economic conditions across the various Fed districts, will offer further clues about the state of economy when it's released on Wednesday.