Research
May 30, 2025

PCE Deflator

Resilient Consumers, Solid Restaurant Spending in April Amid Easing Inflation

The Personal Consumption Expenditures (PCE) deflator—the Federal Reserve’s preferred inflation gauge— rose 0.1% in April, following no change in March. Food prices fell 0.3% in April after jumping 0.5% the month before, while energy costs edged up 0.5%, partially rebounding from March’s 2.7% decline. Excluding the more volatile food and energy components, core PCE increased 0.1% for the second consecutive month.  

On a year-over-year basis, the PCE deflator increased 2.1%, down from 2.3% in March and marking the slowest pace since September. Core inflation eased to 2.5% year-over-year in April, its best reading since March 2021. Both headline and core inflation have cooled significantly from pandemic-era peaks—7.1% for headline PCE in June 2022 and 5.5% for core PCE in September 2022—bringing them closer to the Fed’s 2% target.

With that said, the potential for higher tariffs could push prices upward in the coming months. While these inflation readings are highly encouraging, the key challenge for monetary policymakers is determining how much reflects lasting progress versus a temporary “snapshot” before tariffs take effect.

Against this backdrop, the Federal Reserve is expected to maintain a cautious stance at upcoming Federal Open Market Committee (FOMC) meetings, including the next one on June 17–18. The FOMC has signaled a wait-and-see approach as it monitors incoming data, with interest rates likely to stay elevated even as the possibility of cuts later this year remains on the table.

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Personal consumption expenditures rose 0.2% in April, following solid gains of 0.4% in February and 0.7% in March. Notably, spending on foodservices and accommodations has shown strong momentum, climbing 1.9% in March and 0.9% in April after prior softness. On a year-over-year basis, total personal spending increased 5.4%—matching the pace for foodservices and accommodations. These figures highlight continued resilience in consumer spending despite ongoing economic uncertainty.

However, part of this growth reflects higher prices. Inflation-adjusted personal consumption rose 3.2% year-over-year, while real spending on foodservices and accommodations increased 2.4%. Even when accounting for inflation, consumers are spending more on dining and travel—a positive sign for these sectors.


 
Personal incomes rose 0.8% in April, matching the solid gains seen in February and March. Year-over-year, incomes were up a robust 5.5%. Wages and salaries increased 0.5% in April—the third consecutive monthly rise—pushing annual growth to 4.6%. For those looking to explain the economy’s resilience, such steady wage gains offer an important clue.

At the same time, the data suggest consumers have exercised some caution, drawing on savings to support part of their spending. The personal savings rate rose to 4.9% in March, an 11-month high, after climbing from a cycle-low of 3.5% in December—the lowest since November 2022. This puts the savings rate slightly above the 4.6% average seen since early 2023.