The Personal Consumption Expenditures (PCE) Price Index, the Federal Reserve’s preferred measure of inflation, rose 4.1 percent year-over-year (YOY) in May following a monthly increase of 0.4 percent. That annual rate is the highest since April 2023.

Core PCE, which excludes volatile items like energy and food, similarly rose 3.4 percent YOY, its highest level since October 2023.

Much of the rise comes from increased expenditures on financial services and insurance, following a rally in the S&P 500. 

April’s PCE report had revealed a similar three-year high. The upward trend puts further pressure on the Federal Reserve to raise interest rates. Markets now price the chance of a rate hike at the July 29 Fed meeting at 30 percent with an 80 percent chance by the end of the year.