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May 31, 2025  |  
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Zachary Halaschak, Economics Reporter


NextImg:Inflation declined to 3.8% in May, according to key gauge watched by Fed

Inflation fell to a 3.8% annual rate in May, as measured by the gauge favored by the Federal Reserve.

The decline in the personal consumption expenditures price index reported Friday morning by the Bureau of Economic Analysis shows that inflationary pressures are abating in the face of the Fed’s campaign to slow economywide spending by hiking interest rates.

Nevertheless, inflation is still running hotter than the central bank’s target and dinging household purchasing power.

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Core PCE inflation, a measure of inflation that strips out energy and food prices and is generally less volatile, is clocking in at a 4.6% year-over-year rate.

Other recent measures of inflation have shown that prices are falling back to Earth from the highs notched last year, which marked the country’s worst inflationary plague in decades.

The consumer price index showed a 4% annual rate of inflation in May, down from 4.9% the previous month. The annual CPI inflation rate has been trending down since peaking last June and is now running at the lowest level since March 2021, right around when the country’s inflationary troubles first started bubbling up.

Additionally, inflation fell to a 1.1% annual rate in May, as measured by the producer price index, which gauges the wholesale prices of goods, which are eventually passed down to consumers.

The economy once again beat expectations in May and added another 339,000 jobs. Still, the unemployment rate rose from 3.4% to 3.7%. Additionally, average hourly earnings growth decelerated in May.

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The PCE inflation news comes a day after the Bureau of Economic Analysis revised up its estimate on for first-quarter GDP growth to a 2% annual rate from an estimated 1.3%.

The Fed's target rate is now sitting at 5% to 5.25% — the highest it has been since the financial crisis in 2008.