Inflation rose to 4.1% in May, the highest level in three years, according to the Personal Consumption Expenditures price index. The increase was driven by high gas prices, which have been a major contributor to inflation in recent months.

Core Inflation Rises at Muted Rate

However, when stripping out gas and food prices, core inflation rose at a more muted annual rate of 3.4% from 3.3% in April. This suggests that the underlying inflation trend may be slowing down.

The inflation readings were mostly in line with economists’ expectations, according to FactSet consensus estimates. The data comes at a pivotal time for Fed policymakers, who have signaled patience on rate cuts amid lingering concerns about sticky inflation.

Financial markets are currently pricing in the possibility of rate hikes later this year. President Donald Trump has repeatedly pushed for the central bank to cut rates, but stronger-than-expected inflation readings push the timeline for such a move further out.

Spending and Income Rise

Meanwhile, spending and income rose faster than economists anticipated last month. Disposable income rose to 0.7% in April, although this is before adjusting for inflation. Even when adjusting for inflation, disposable incomes rose 0.3% in April.

Spending also rose by 0.3%, and personal savings ticked up slightly in May after dwindling for months as consumers spent more on gas.

The US gross domestic product was revised higher to 2.1% from 1.6% in the third estimate, due to a downward revision on imports, which subtracts from GDP.

Original reporting: El Paso News (HLL/CB) — read the source article.