Core PCE, closely watched by Fed, up 0.3% in May

June 30 (UPI) -- Personal Consumption Expenditures, the Federal Reserve's preferred gauge of inflation, rose slightly in May, the Commerce Department reported Friday.

The overall PCE price index, a reflection of consumer spending, rose by 0.1% but the core index, which strips out volatile food and energy prices and is preferred by the Fed rose 0.3%.

PCE increased by 3.8% annually to May while the core number rose 4.6% for the year.

For wages, the Commerce Department reported personal income and disposable personal income both grew by 0.4% month-on-month in May.

By item, the index for new vehicles dropped by 0.4% month-on-month to May, while non-prescription drugs increased 1.5% on a monthly basis.

Data on core PCE may be welcome news for a Federal Reserve trying to tame inflation by making borrowing costs more prohibitive by increasing its lending rates. At the same time, the increase in personal incomes could incentivize demand and support growth.

After opting to leave rates unchanged earlier this month, Federal Reserve Chairman Jerome Powell testified before Congress that two more rate hikes may be necessary to cool the economy, however.

Speaking at a banking forum Thursday in Spain, Powell said there's "a long way to go" before inflation moves closer to the 2% target rate.

"We see the effects of our policy tightening on demand in the most interest rate-sensitive sectors of the economy, particularly housing and investment," he said. "It will take time, however, for the full effects of monetary restraint to be realized, especially on inflation."

Craig Erlam, a London-based senior market analyst for the brokerage OANDA, said in a research note that the longer inflation remains above target, the longer rates will remain high. That, in turn, could lead to "a big risk" in terms of long-term economic trajectory.

Consumer inflation is running about twice as high as the Fed's target rate.