The US Bureau of Economic Analysis (BEA) released some critical US inflationary data yesterday. Data showed that US inflationary pressures are accelerating as the conflict in the Middle East pushes up energy prices and is weighing on consumer spending. Meanwhile, a second estimate showed that the US economy grew at a slower pace than the first estimate. The US economy appears to be showing its fragility amid elevated geopolitical tensions and ongoing trade disruptions.

• The personal consumption expenditure price index (PCE) rose by 3.8%, on a year-over-year basis, in April, which was up from the 3.5% increase in March. This marks the highest year-over-year increase in the PCE since May 2023.
• The PCE is the preferred inflation gauge of the US Federal Reserve Board (Fed).
• The annual core PCE, which excludes more volatile items, increased by 3.3% in April, its highest level since November 2023.
• Higher prices took a bite out of personal spending. Inflation-adjusted spending rose by 0.1% in April, suggesting US households are pulling back on discretionary spending amid the pressure from higher prices.
• A separate report from the BEA gave a second estimate of US economic growth, showing the economy grew at an annualized pace of 1.6% in the first quarter of 2026. This was down from the initial estimate of 2.0% annualized growth.

The conflict in the Middle East is pushing energy prices higher, which is sending gauges of US inflation soaring to multi-year highs. The downwardly revised economic growth rate and soft inflation-adjusted consumer spending suggest geopolitical tensions are weighing on economic activity in the US. Markets will now turn their attention to the Fed to try to predict if the Fed will raise interest rates this year. The Fed holds its next interest rate announcement on June 17. 

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