Research
May 28, 2026
PCE Deflator
Consumer inflation jumped in April; consumers dipped into savings to boost spending
The Personal Consumption Expenditures (PCE) deflator—the Federal Reserve’s preferred measure of inflation—rose 0.4% in April, building on the strong 0.7% increase recorded in March. Much of this upward pressure continues to come from energy costs, which have been elevated amid the ongoing conflict in Iran. Energy prices rose 0.4% in April following 1.0% gains in both February and March, with gasoline and other energy goods surging 31.9% over the past year.
On a year-over-year basis, the headline PCE deflator increased 3.8% in April, up from 3.5% in March and marking the fastest pace of inflation since May 2023. Core PCE inflation, which excludes food and energy, rose 0.2% in April. Over the past 12 months, core inflation edged higher from 3.2% to 3.3%, reaching its highest level since November 2023.
Taken together, these data reinforce a broader pattern of accelerating price pressures in April, particularly due to rising energy costs. Notably, even prior to the escalation of tensions in Iran, inflation had already begun to trend upward over the past year, stalling the anticipated moderation in price growth.
This environment presents a challenge for the Federal Reserve. While the labor market remains resilient, it shows signs of gradual cooling. At the same time, inflation remains persistently elevated and is moving in an unfavorable direction. In response, the Federal Open Market Committee is likely to maintain its current policy stance in the near term. Policymakers have adopted a more hawkish tone in recent communications, reflecting renewed concerns about inflation. Although some officials have raised the possibility of further interest rate increases, the most probable outcome is that rates will remain unchanged for much of the year, but incoming data could change that outcome.
Beyond inflation, personal consumption expenditures rose 0.5% in April, following strong gains of 0.7% in February and 1.0% in March. In nominal terms, consumer spending has remained robust over the past three months despite higher gasoline prices, weakening consumer confidence, and broader economic uncertainty. Higher tax refunds likely provided additional support. Spending on foodservices and accommodations also strengthened, increasing 0.7% in April after a more modest 0.2% rise in March.
Over the past 12 months, total personal spending has advanced a solid 5.9%. Spending on foodservices and accommodations, however, rose a more modest 3.3% over that period, suggesting continued, though somewhat tempered, resilience in consumer demand amid ongoing headwinds and softer recent readings.
That said, a meaningful portion of this growth reflects higher prices, with real (inflation-adjusted) consumption increasing at a slower pace. Real personal consumption edged up just 0.1% in April and was 2.1% higher than a year ago. In contrast, real spending on foodservices and accommodations rose 0.2% in April but declined 0.3% over the past year.
Personal incomes were flat in April, slowing from 0.5% growth in March. Overall, personal income grew by a modest 2.5% over the past 12 months. Wages, which have been a large contributor to the economy’s resilience, increased 0.2% in April, with 3.5% growth year-over-year. April data on personal income were weighed down by reduced transfer payments (such as Medicaid and unemployment insurance) and proprietors’ income.
Of particular note, disposable personal income—or the amount of money that households have after paying taxes—inched down 0.1% in April, with 2.6% growth over the past year. Yet, adjusted for inflation, real disposable personal income decreased 0.5% in April, falling 1.1% over the past 12 months. This helps to explain why affordability has become such a concern for many consumers, with weaker real spending despite resilience in nominal terms.
With spending rising and incomes down, the personal savings rate declined from 3.2% in March to 2.6% in April, the lowest since June 2022. Overall, the savings rates in the post‑pandemic period remain well below historical norms. Prior to the pandemic, the savings rate averaged 6.5% from 2017 to 2019, compared with an average of just 5.1% since the start of 2023. The savings rate over the past 12 months has consistently run below that already‑reduced pace, suggesting that consumers are dipping into their savings to finance their spending.
On a year-over-year basis, the headline PCE deflator increased 3.8% in April, up from 3.5% in March and marking the fastest pace of inflation since May 2023. Core PCE inflation, which excludes food and energy, rose 0.2% in April. Over the past 12 months, core inflation edged higher from 3.2% to 3.3%, reaching its highest level since November 2023.
Taken together, these data reinforce a broader pattern of accelerating price pressures in April, particularly due to rising energy costs. Notably, even prior to the escalation of tensions in Iran, inflation had already begun to trend upward over the past year, stalling the anticipated moderation in price growth.
This environment presents a challenge for the Federal Reserve. While the labor market remains resilient, it shows signs of gradual cooling. At the same time, inflation remains persistently elevated and is moving in an unfavorable direction. In response, the Federal Open Market Committee is likely to maintain its current policy stance in the near term. Policymakers have adopted a more hawkish tone in recent communications, reflecting renewed concerns about inflation. Although some officials have raised the possibility of further interest rate increases, the most probable outcome is that rates will remain unchanged for much of the year, but incoming data could change that outcome.
Beyond inflation, personal consumption expenditures rose 0.5% in April, following strong gains of 0.7% in February and 1.0% in March. In nominal terms, consumer spending has remained robust over the past three months despite higher gasoline prices, weakening consumer confidence, and broader economic uncertainty. Higher tax refunds likely provided additional support. Spending on foodservices and accommodations also strengthened, increasing 0.7% in April after a more modest 0.2% rise in March.
Over the past 12 months, total personal spending has advanced a solid 5.9%. Spending on foodservices and accommodations, however, rose a more modest 3.3% over that period, suggesting continued, though somewhat tempered, resilience in consumer demand amid ongoing headwinds and softer recent readings.
That said, a meaningful portion of this growth reflects higher prices, with real (inflation-adjusted) consumption increasing at a slower pace. Real personal consumption edged up just 0.1% in April and was 2.1% higher than a year ago. In contrast, real spending on foodservices and accommodations rose 0.2% in April but declined 0.3% over the past year.
Of particular note, disposable personal income—or the amount of money that households have after paying taxes—inched down 0.1% in April, with 2.6% growth over the past year. Yet, adjusted for inflation, real disposable personal income decreased 0.5% in April, falling 1.1% over the past 12 months. This helps to explain why affordability has become such a concern for many consumers, with weaker real spending despite resilience in nominal terms.
With spending rising and incomes down, the personal savings rate declined from 3.2% in March to 2.6% in April, the lowest since June 2022. Overall, the savings rates in the post‑pandemic period remain well below historical norms. Prior to the pandemic, the savings rate averaged 6.5% from 2017 to 2019, compared with an average of just 5.1% since the start of 2023. The savings rate over the past 12 months has consistently run below that already‑reduced pace, suggesting that consumers are dipping into their savings to finance their spending.