Core PCE Cools Slightly in April as Consumer Spending Outpaces Income — Evening Brief – 05.28.26

U.S. inflation eased modestly in April on a monthly basis, but underlying price pressures remained well above the Federal Reserve’s long-term target as consumers continued spending despite stagnant income growth, according to data released Thursday by the Bureau of Economic Analysis.

The core personal consumption expenditures price index, the Fed’s preferred measure of underlying inflation, rose 0.2% month over month in April, below the 0.3% consensus forecast and slowing from March’s 0.3% increase. On a year-over-year basis, core PCE accelerated slightly to 3.3% from 3.2% in March.

Headline PCE, which includes food and energy prices, increased 0.4% during the month, below expectations for a 0.5% rise but higher than March’s 0.7% gain. Annual headline inflation climbed to 3.8%, matching consensus expectations and rising from 3.5% the prior month.

The report underscored the continued challenge facing policymakers as inflation remains sticky despite signs of moderation in monthly pricing trends.

Consumer spending remained resilient even as income growth stalled. Personal outlays rose 0.5% in April, matching expectations, though slowing from March’s upwardly revised 1.0% increase. Meanwhile, personal income was unchanged during the month, missing forecasts for a 0.4% gain. Disposable personal income declined 0.1%.

With spending continuing to outpace income growth, Americans saved less. The personal saving rate fell to 2.6% from 3.2% in March, marking its lowest level in at least 16 months.

The data is likely to reinforce expectations that the Federal Reserve will remain cautious about cutting interest rates as inflation pressures continue lingering above the central bank’s 2% target.