US consumer spending rises as inflation hits 3-year high

US consumer spending kept climbing in May despite Iran war fallout and the fastest inflation in more than three years, new government data showed.

At the same time, US new-home sales fell to their weakest pace since January, and the White House sharpened its focus on gasoline prices that have not eased as quickly as crude oil.

Consumers push on as inflation accelerates

Spending by US households accelerated in May, signaling resilience even as price pressures re-accelerated. The update arrives as markets gauge whether geopolitics and higher borrowing costs are finally restraining demand.

The personal consumption expenditures (PCE) price index increased 4.1% from a year earlier, according to the Bureau of Economic Analysis. That was the highest year-over-year reading since April 2023, putting fresh attention on the inflation measure closely watched by the Federal Reserve.

The combination of firmer spending and hotter inflation suggests the US economy is still running with enough momentum to absorb shocks. It also complicates the case for rapid interest-rate relief if price growth stays elevated.

Homebuilders face rate pressure despite discounts

While consumers spent more broadly, the housing market showed clearer strain from high financing costs. New-home demand softened even as builders leaned on incentives to attract buyers.

Purchases of newly built single-family homes fell 7.3% in May to a seasonally adjusted annual rate of 580,000, according to figures from the US Census Bureau and the Department of Housing and Urban Development. The decline pushed sales to their lowest level since the beginning of 2026 and came as the supply of homes for sale increased.

The report highlights the uneven nature of demand across the economy. Big-ticket purchases tied to mortgage rates remain more sensitive to monetary policy than day-to-day consumption.

Gasoline prices draw scrutiny as Europe’s Treasury role looms

Energy prices added another layer to the inflation debate. US President Donald Trump said he directed the Department of Justice to examine gasoline pricing, arguing pump prices are not adjusting quickly enough to declines in crude oil.

Retail gasoline has often been slower to fall than crude benchmarks, in part because of seasonal demand and summer-grade fuel requirements that can raise costs in refining and distribution. The gap has become more visible as motorists enter peak driving season.

Beyond energy, research out of Europe underscored how overseas financial flows can shape US borrowing conditions. Data from the US Treasury showed European countries hold close to 40% of US Treasury securities owned by foreign residents, giving the region an outsized position in a market central to global finance.

A study by the Kiel Institute for the World Economy argued that if European jurisdictions, including the UK, were to remove preferential regulatory treatment for US government debt in banking and insurance rules, demand could drop by about $200 billion over a decade. The study estimated that reduced demand could translate into as much as $42 billion per year in additional US fiscal costs via higher yields.

The week’s figures and policy signals point to a US economy that remains supported by consumer activity even as inflation heats up and rate-sensitive sectors cool. Investors and policymakers will be watching whether elevated prices persist, whether housing stabilizes, and whether regulatory or geopolitical tensions ripple into the Treasury market.