The 6-month PCE price index accelerated to 2.8% annualized, despite dropping energy prices. It’s been 2.7% to 3.3% in 2025, sharply higher than in the 2nd half of 2024.
By Wolf Richter for WOLF STREET.
The inflation measure released today for May – the overall PCE price index favored by the Fed as yardstick for its inflation target – re-accelerated month-to-month and year-over-year, despite the steep drop in the components for energy.
The “core” PCE price index, which excludes the food and energy components, also re-accelerated month-to-month and year-over-year.
The year-over-year readings of both the overall PCE price index and the core PCE price index moved further away from the Fed’s 2% target.
There are still no signs in the inflation data that the new tariffs are getting passed to consumers. If that happens in future months, and to whatever extent it might happen, it would add to inflation.
On a year-over-year basis in May:
- Overall PCE price index (red): +2.3%, despite the plunging PCE price index for energy. The Fed’s target is 2.0% (purple).
- Core PCE price index (blue): +2.7%.
- Core Services PCE price index (gold): +3.3%.
- Durable goods PCE price index (dotted green): +0.5%, first positive year-over-year reading since May 2023, continuing the bounce-back that started a year ago after the big plunge in 2022 and 2023 (but month over month, the change was 0% in May, indicating that tariffs have not yet been passed on to consumers. The CPI data for May had already pointed that out).
Month-over-month and on a 6-month basis in May:
The overall PCE price index rose by 0.14% (+1.6% annualized) in May from April.
The 6-month PCE price index, which irons out the month-to-month squiggles, accelerated to +2.8% annualized, in May from April.
So far in 2025, the 6-month readings have been in the 2.7% to 3.3% range, a sharp acceleration from the second half of 2024.
The core PCE price index, which excludes food and energy items, accelerated in May to +0.18% (+2.2% annualized).
The 6-month core PCE price index (red) accelerated to +2.9% annualized.
The core services PCE Price Index, which excludes energy services, rose by 0.16% (+1.9% annualized) in May from April.
And April’s freak low reading reported a month ago was revised higher today. That low reading in April was caused by a massive month-to-month negative reading in Financial Services, due to the plunge in the financial markets in April, and a historic cliff-dive in Recreation Services (we discussed this phenomenon at the time).
The month-to-month plunge of the index for Financial Services in April was revised higher today from the originally reported -1.69% (-18.6% annualized) to -1.33% (-14.9% annualized). And for May, both Recreation and Financial Services bounced off their lows.
The 6-month core services PCE price index was essentially unchanged at +3.4%.
Housing inflation has wobbled around in the same range for nearly a year. The PCE price index for housing, based on various rent factors, rose by 0.26% (3.2% annualized) in May from April (blue), about where it had been in June 2024, above November, and below the much higher readings in March and April.
The 6-month housing index (red) rose by 3.9% annualized, for the fourth month in a row in that range.
The year-over-year index decelerated to +4.1% (yellow).
Clearly, rent inflation has ebbed, though it remains slightly above pre-pandemic levels:
Durable goods prices continue zigzagging out of the hole, a trend that started in 2023. Durable goods include motor vehicles, appliances, consumer electronics, furniture, etc. Many of these products or their components and materials are produced overseas and are subjected to new tariffs. So we look at them carefully.
In May, the PCE price index for durable goods was unchanged (0%) from April (blue).
The low point, in terms of the month-to-month declines off the majestic spike came in May 2024 (-8.8% annualized). Since May 2024, month-to-month price drops became smaller, interspersed by ever higher month-to-month increases, and the pattern has been higher. We have discussed this phenomenon here since last August, when used vehicle prices started to rise again.
The six-month PCE price index for durable goods has been slightly positive for four months, and in May accelerated to +1.4% annualized. It had bottomed out in December 2023 at -4.3% annualized.
The plunge in durable goods prices was one of the big factors that drove inflation down from mid-2022 into 2024. Now services inflation has cooled, but durable goods inflation is no longer negative, but slightly positive and as such is still pushing down inflation, but much less so than from mid-2022 into 2024.
This is what the Fed is waiting for: The portion of tariffs that gets successfully passed on to consumers, if any, will be visible in durable goods inflation. Many of these goods are imported and tariffed, or their components are imported and tariffed.
The Fed has said repeatedly that it wants to see to what extent the tariffs add to inflation, and to what extent companies eat them, and they can eat them without indigestion as they piled on record massive profits during the high-inflation years.
If a portion of the tariffs get successfully passed on to consumers and thereby make it into inflation, the Fed wants to see if it leads to just a “one-time bump” in the price level, or triggers persistently higher inflation rates as consumers start tolerating sharply rising prices again.
None of that has happened yet. It all depends on consumers. If they refuse to buy goods whose prices have been jacked up, companies will have a hard time raising prices without gutting their sales and losing market share.
The free money is gone, consumers are once again prudent and no longer willing to pay whatever. Demand growth is tepid. Consumers’ walking away from high prices is exactly why prices of durable goods plunged starting in mid-2022. Consumers have had it with high prices that go even higher. Price increases once again have consequences on sales and market share.
But how consumers will react to price increases remains uncertain. Consumers might once again tolerate bigger price increases, and if they do, inflation will accelerate. And the Fed is right in waiting to find out how this develops.
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Yet the market today is rallying again today because somehow the market is thinking Pow Pow will cut rate soon regardless of what the PCE or inflation is looking like….so glad to see we can forever live in La-La land as if all the problems has magically gone away now and hopium just keep us going higher and higher..
Enjoy it buddy, when the Music stops make sure you’ve got some of that LA la Land stuff stashed away
Completing the 5 Elliott wave.
Could be that the market priced in more inflation impart from tariffs
*impact
The CRB index has been climbing since last September:
https://tradingeconomics.com/commodity/crb
In fact, it has recently hit new highs. Inflation is idiosyncratic. It still feels abnormally high when we go shopping no matter what the indices say.
That corporate profits graph is close to disgusting. It’s almost the peace time equivalent of profiteering.
The sleeping lion is the Trump BBB should it be passed. Is there an appetite for $2T more bonds at current rates?
Powell or his heir can cut all they want…that doesn’t mean buyers will buy.
A chunk of those increased profits are simply due to inflated dollars. Not all of course. This is the insidious downside of inflation. What are things worth? If I’m making more profit, is that real or inflation adjusted??
So inflation was about 23% over this period, and those profits spiked by 122% over this period.
https://wolfstreet.com/2025/06/26/the-corporate-profit-explosion-stalls-in-q1-on-the-eve-of-the-new-tariffs/
The freeze on tariffs ends July 9.
There is no general “freeze on tariffs.” The baseline 10% tariff on all countries is in effect, as are specific tariffs on steel, aluminum, and on some goods from Canada and Mexico, as are other tariffs, as are the tariffs on goods previously exempted under de minimis loophole, etc. etc. Hard to keep up with this stuff. The only tariffs that were paused were the specific country-based “reciprocal tariffs.”
You can see right here that the tariff cash is rolling in — preliminary figures for May indicate that receipts from tariffs in May are even bigger, around $30 billion (update coming next week):
Re: “Consumers have had it with high prices that go even higher”
The 90 deals in 90 days tariff framework that hasn’t produced a single real deal, is being extended into September — but, the failure of Bidenomics, was the cumulative compounding impacts of inflation, that continued grinding down consumers and voters. Supercharging Bidenomics in 2025 seems curious.
It’s hard to believe that consumers that were stressed by inflation for the past three years, are going to blow off tariff impacts 3 months or a year from now.
Corporations may have had nice profit margins lately, but are shareholders going to accept lower share prices and absorb the shock — or will consumers be counted on for their nonstop Teflon resilience and pirate-like habits?
I don’t see happiness ahead — but happy is overrated.
You don’t understand the most fundamental economic principle: If consumers refuse to buy at high prices from a company, that company’s revenues and market share will fall. It doesn’t make one effing iota of difference what stockholders want. They have no say in this. Stockholders don’t matter. Consumers do! These stockholders’ shares will just go to zero, no problem, Bed, Bath & Beyond and hundreds of others just over the past few years, happens all the time. Adios shareholders.
Companies go out of business all the time because their revenues drop and their expenses are too high and their debts too high, and their losses are too high. C’est la vie. Better-managed companies take their market share and thrive.
FYI, Uomich survey is an example of people still amped up on Extended Bidenomics+tariff anxieties — which are now extending like a Pinocchio nose mutation with a side dish of TACO.
““About 59% of consumers spontaneously offered comments about tariffs, down modestly from about 66% last month. Still, tariff mentions continue to come from a broad swath of the population and reflect ongoing anxiety that the threat of inflation remains real, even if consumers are no longer bracing for a worst case scenario as they appeared to do so in April and early May.”
Consumers were hit by the ceaseless massive onslaught of toxic idiotic lying bullshit in the media and social media – own by Corporate America and the billionaire class — about tariffs. I experienced this onslaught of bullshit and lies here first-hand here in the comments. I have never ever seen anything like this. This tsunami of manipulative lies and bullshit about tariffs polluted people’s brains. But eventually people see through it.
I read a book “Three fund portfolio”. Essentially an index funds of VOO/BND/VXUS at 40% 40% 20%. This will beat any other wise guy. If this is true, we can simply invest in the bonds and index funds and get great benefits right?
You gotta love the corporate profits chart illustrating where the trillions of stimulus and government spending ended up… more than doubling in size, while GDP grew by perhaps 30% since 2019, barely keeping up with inflation. Asset holders love “Modern Monetary Theory” – it pushed income inequality into overdrive. In the context of MMT, governments should control inflation by hiking taxes, but that never happened under Biden. Funny how things always end up benefiting the wealthy, no matter who is in the White House.