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Fed PCE Inflation Gauge Extends Surge To 3.9%; Consumer Spending Slows

The Federal Reserve's preferred inflation gauge raced to its highest level since 1991 last month, data from the Bureau of Economic Analysis indicated Friday.

The Federal Reserve's preferred measure of U.S. inflation surged the most in nearly three decades for a second consecutive month, figures released Friday indicated, as investors continue to worry that the central bank's insistence that price pressures will ease next year is not being matched by data from the real economy.

The core May PCE Price Index rose 3.4% from last year, the highest since 1991, and 0.5% on the month, the Bureau of Economic Analysis reported, just under Wall Street forecasts but still adding to investors concerns about the sticky nature of consumer prices. 

The headline PCE index was up 0.4% on the month and 3.9% on the year, the highest since 2001. Personal income decreased for a second month, falling 13.1%, while personal consumption expenditures were flat, the BEA noted, missing Street forecasts of a 0.4% gain. 

That reading matches the signals from the Commerce Department's May retail sales tally, which showed a 1.3% decline to $620.2 billion as the impact of stimulus from the American Rescue Act continued to fade and prices rose at the fastest pace in more than ten years.

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U.S. stocks were moderately higher following the data release, with futures contracts tied to the Dow Jones Industrial Average indicating a 150 point opening bell gain and those linked to the S&P 500 priced for a 9 point advance.

Benchmark 10-year notes were little-changed at 1.489%.

Earlier this month, the Bureau of Labor Statistics said U.S. consumer price inflation increased at the fastest pace in more than a decade over the month of May, with headline CPI estimated at 5%

Inflationary pressures have been evident in several sectors of the global economy last month, with China reporting the biggest surge in factory gate prices since 2008 and the most recent JOLTs job openings data showing a record high 9.3 million vacant positions in the U.S. labor market, suggesting employers will need to boost wages even beyond last month's 2% increase to entice people back onto the shop floor.