The Federal Reserve's preferred inflation gauge, the personal consumption expenditures price index, rose 4.1% in May from a year earlier, the largest annual increase since April 2023, the Commerce Department reported Thursday. On a monthly basis, the index increased 0.4%, matching April's rise and down from 0.7% in March. Inflation has remained above the Fed's 2% target for more than five years, prompting concern among households and policymakers. The gauge, which the Fed prefers to the consumer price index because it weights housing less and reflects changing purchasing patterns, reached a three-year high. Gas prices, a key component, climbed to about $4.50 a gallon nationally in May before falling to $3.92 by Thursday, according to AAA, keeping prices more than 20% higher than a year ago as the driving season began. Prices for semiconductors and other computer equipment also contributed to the increase, reflecting heightened demand linked to artificial intelligence investments. The Fed kept its benchmark interest rate unchanged this year, reversing a January forecast that had penciled in two rate cuts; some economists now expect the central bank to raise rates later in 2026. New Fed chair Kevin Warsh said the agency remains determined to bring inflation down to its 2% goal but offered no specific steps. Market expectations of a possible rate hike sparked volatility, especially in technology stocks, which had been expanding rapidly. Consumer spending rose at a solid pace, with real spending up 0.3% from April to May, and inflation-adjusted incomes increased 0.3% for the first time in four months, potentially supporting future consumption. Mark Vitner, chief economist at Piedmont Crescent Capital, noted that inflation had not exceeded 2.5% for nearly a decade before the pandemic, making recent spikes more difficult for households to accept. The Fed has not signaled a change in policy, leaving the outlook for interest rates and economic growth uncertain.