Purchases of goods and services were unchanged following an upwardly revised 0.9% increase in April, Commerce Department figures showed Friday. The personal consumption expenditures price gauge, which the Federal Reserve officially uses for its inflation target, rose 0.4%.

The median estimate in a Bloomberg survey of economists called for a 0.4% increase in outlays. While spending on services increased in May, the overall figure was depressed by a decline in goods. Stock futures ticked higher and Treasury yields were little changed after the report.

Though the May figure missed expectations, it was balanced by the stronger-than-initially-reported April advance. Mass vaccinations and the reopening of the economy have given consumers the confidence to travel and resume many pre-COVID activities.

When paired with elevated savings levels and fewer restrictions, spending on services should move toward pre-pandemic levels in the coming months.

At the same time, elevated demand paired with supply bottlenecks and capacity constraints are pushing prices higher. The pickup in inflation has taken a bite out of Americans’ paychecks, with consumers facing higher prices at the gas pump, at restaurants and at the grocery store.

The gain in the overall PCE price index in May followed a 0.6% increase a month earlier. Adjusting for inflation, spending decreased 0.4% in May after a 0.3% gain in April.

With retail sales hovering near record highs, consumption has begun shifting toward services—the biggest part of the economy. Adjusted for inflation, goods outlays fell 2%, while spending on services climbed 0.4%, the personal spending report showed. The decline in outlays for merchandise was led by the biggest drop in durable goods spending since February.

Incomes declined for a second month, falling 2% in May after surging in March when many Americans received another round of federal stimulus checks.

Inflation concerns

The core price index, which excludes food and energy, rose 0.5% from a month earlier. The core gauge jumped 3.4% from May 2020, the biggest advance since 1991. The PCE price index climbed 3.9% from a year earlier.

Inflationary pressures have picked up meaningfully in recent months, but the year-over-year inflation metrics are distorted by so-called base effects. Because of the very weak inflation prints at the start of the pandemic, annual increases in the price metrics appear larger.

Whether the recent pickup in inflation will be temporary or the start of a bigger trend has been intensely debated among economists, market participants and politicians. Fed Chair Jerome Powell acknowledged the rise in inflation has been larger than anticipated, but overall, he maintained that the spike will prove temporary.

Powell told lawmakers on Tuesday that “a pretty substantial part or perhaps all of the overshoot in inflation comes from categories that are directly affected by the reopening of the economy,” and should therefore be expected to dissipate over the course of the year.

While some Fed officials in public appearances this week echoed that sentiment, others disagreed, citing the risk of persistent higher inflation.

—With assistance from Kristy Scheuble and Matthew Boesler.