The PCE report set for release Thursday, June 25, at 8:30 a.m. EDT is expected to show the Federal Reserve’s preferred inflation gauge reaching 4.1% year-over-year in May—its highest level since April 2023—as energy prices continue to fuel persistent price pressures across the economy.
Forecasts compiled by FactSet call for the headline PCE price index to rise 0.5% month-over-month in May, according to Morningstar. The annual rate of 4.1% would exceed the Fed’s 2% inflation target by a significant margin, underscoring the stickiness of inflation even as some economists project relief ahead.
Core PCE, which excludes volatile food and energy costs, is forecast to advance 0.4% month-over-month and 3.3% year-over-year in May, unchanged from April’s annual pace. This measure, closely tracked by Federal Reserve policymakers, remains well above the central bank’s target.
High energy prices stemming from the Iran conflict remain the primary driver of headline inflation. Energy prices surged 3.9% in May amid the Middle East disruption, with prices up 23.5% over the past year, according to reported data. Bank of America, Goldman Sachs, and UBS economists all expect the May PCE reading to reflect the elevated energy environment already seen in May’s Consumer Price Index and Producer Price Index reports.
Despite the near-term pressure, economists widely expect May to mark inflation’s peak for 2026. Morningstar senior economist Preston Caldwell noted that with ongoing U.S.-Iran talks that could reopen the Strait of Hormuz and ease energy-driven inflation, plus the anticipated fade of tariff effects, “some of the drivers of goods inflation should fall.” UBS economists added that while June core PCE is projected to remain roughly similar to May, “a clearer slowing begins in July” as gasoline prices have already declined roughly $0.56 per gallon since mid-May.
The May PCE report arrives as the Federal Reserve weighs its next policy moves. Last week’s Fed meeting took a slightly hawkish tone, with central bank officials signaling a meeting-by-meeting approach to rate decisions. Deutsche Bank economists expect the Fed to raise interest rates twice in 2026, bringing the federal funds rate to 4.1%, though the Fed’s June projections revised core PCE inflation upward from 2.7% to 3.3% for the end of 2026, reflecting persistent price pressures.
Sources
- Morningstar — PCE forecast data, economist Preston Caldwell commentary on inflation drivers and expectations
- Reuters — April PCE inflation reading (3.8% annual), Iran conflict impact on energy prices
- U.S. Bureau of Economic Analysis (BEA) — Official PCE price index data for April 2026 (3.8% headline, 3.3% core)
- Politico — Energy price surge (23.5% year-over-year) driven by Iran conflict
- New York Times — Context on Iran conflict’s impact on global energy markets and inflation
- Federal Reserve Bank FRED Blog — June 2026 FOMC Summary of Economic Projections, inflation revisions
