U.S. Inflation Rises as Middle East Tensions Lift Energy Costs

April’s personal consumption expenditures price index increased 3.8% from a year earlier and 0.4% from March, the Bureau of Economic Analysis reported. Core PCE, which excludes food and energy, rose 3.3% year-over-year and 0.2% for the month. Officials and analysts point to higher energy prices linked to the ongoing conflict in the Middle East as a factor behind the gains. The PCE is the Federal Reserve’s preferred inflation gauge and the headline annual reading was the highest since May 2023, while the core annual rate was the strongest since late 2023.

The U.S. economy expanded at a 1.6% annualized rate in the first quarter, according to the BEA’s second estimate, up from 0.5% in the fourth quarter of 2025 but below the 2.0% forecast. Exports, business investment, consumer spending and government outlays contributed to growth in the period.

The Conference Board’s Consumer Confidence Index fell 0.7 points in May to 93.1. The index remained above consensus estimates, but respondents reported more concern about rising prices and international unrest. The drop reflected weaker assessments of current conditions even as views on labor and business prospects showed some improvement. Consumer comments frequently mentioned geopolitical tensions and higher costs.

Equity markets continued to advance through the week, with the S&P 500 posting daily gains and rising about 1.6% for the week. The SPDR S&P 500 ETF Trust rose roughly 1.5% over the same period. Fixed-income markets saw the 10-year Treasury yield near 4.45% and the 2-year yield around 3.98% at week’s end. Traders widely expect the Federal Reserve to leave its policy rate unchanged at the June meeting, with market tools showing about a 99% probability of no change and pricing in a potential 25 basis point hike by early 2027 followed by a pause.

Data due in the week beginning June 1 that could affect growth and inflation expectations include manufacturing and services purchasing managers’ indices, the JOLTS job openings report for April, the ADP private payrolls estimate, weekly unemployment claims and the Bureau of Labor Statistics employment report for April.

The PCE index measures changes in prices consumers pay for goods and services and is weighted to reflect household spending patterns. Core PCE removes volatile food and energy prices to provide a view of underlying inflation. The Conference Board’s Consumer Confidence survey asks households about current conditions and expectations and is monitored for signs of changes in spending behavior.