The Fed’s preferred inflation measure rose 4.7% in May, around the highest level in decades

A customer counts his money at the register while purchasing an item at a Best Buy store in Flushing, New York.

Jessica Rinaldi | Reuters

Inflation remained stubbornly high in May, although the monthly increase was slightly less than expected, according to a Commerce Department gauge closely monitored by the Federal Reserve.

Prices of core personal consumption expenditures rose 4.7% from a year ago, 0.2 percentage points less than the month before, but still around levels last seen in the 1980s. Wall Street was looking for a position of around 4.8%.

On a monthly basis, the measure, which excludes volatile food and energy prices, rose 0.3%, slightly below the 0.4% of the Dow Jones estimate.

However, headline inflation rocketed, rising 0.6% for the month, much faster than the 0.2% rise in April. That kept annual inflation at 6.3%, the same as in April and slightly below March’s 6.6%, the highest level since January 1982.

In addition, the report reflected pressures on consumer spending, which accounts for nearly 70% of all economic activity in the US

While personal income rose 0.5% in May, ahead of the estimate of 0.4%, after-tax and other expense income, or disposable personal income, declined 0.1% month-on-month and 3.3 % compared to a year ago. Expenditure adjusted for inflation fell 0.4%, a sharp decline from the 0.3% increase in April, although it grew 2.1% year-on-year.

“The rising cost of living absorbed all the increased purchasing power from the added jobs and higher wages in May,” said Bill Adams, chief economist at Comerica Bank. “Americans run faster to stay the same. No wonder consumer confidence is in the pits.”

Goods inflation rose 9.6%, while services prices rose 4.7%, both by 0.1 percentage point more than in April.

The personal savings rate increased slightly to 5.4%, an increase of 0.2 percentage points compared to the previous month.

Fed officials are keeping a close eye on the data as they try to contain runaway inflation. Central bank policymakers generally keep a closer eye on core inflation because they believe monetary policy is less effective in controlling the rises and falls in gas and food prices.

However, Fed Chair Jerome Powell has said in recent days that he also keeps a close eye on headlines, as well as average gas prices of about $4.86 per gallon.

The consumer price index, which measures a wide variety of goods and services and is more closely watched by the public, rose 8.6% in May, its highest level since late 1981.

In other economic news on Thursday, the Labor Department reported that unemployment claims fell to 231,000 for the week ended June 25. That was a decrease of 2,000 from the previous period, although 1,000 higher than the estimate.

Ongoing claims, which are a week behind the total number, totaled 1.33 million, a slight decrease from the previous week.

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